


LIBRARY OF CONGRESS 

ii inn mil in" inn Him ill if" 



D0DlElt330bA| 



^ 



UNIVERSITY OF WISCONSIN STUDIES 

IN THE SOCIAL SCIENCES AND HISTORY 
NUMBER 5 



CYCLES OF PROSPERITY AND DEPRESSION 

IN THE UNITED STATES, GREAT 

BRITAIN AND GERMANY 



A STUDY OF MONTHLY DATA 1902-1908 



mr 
ALVIN HARVEY HANSEN 

ASSOCIATE PROFESSOR OF ECONOMICS 
University of Minnesota 



MADISON. 
1921 



UNIVERSITY OF WISCONSIN STUDIES 

NUMBER 20 SOCIAL SCIENCES AND HISTORY NO. 5 

DECEMBER, 1921 PRICE $1.00 

Published bi-monthly by the University of Wisconsin, at Madison, 
Wisconsin. 

Entered as second-class matter at the postoffice at Madison, Wis- 
consin, under the Act of August 24, 1912. Accepted for mailing- at 
special rates of postage provided for in Section 1103, Act of October 
3, 1917. Authorized September 17, 1918. 



No. 1. The colonial citizen of New York City, by Robert Francis 
Seybolt. 40 p. Fifty cents. 

No. 2. The restoration of the southern railroads, by Carl Russell 
Fish. 28 p. Fifty cents. 

No. 3. The misinterpretation of Locke as a formalist in educa- 
tional philosophy, by Vivian Trow Thayer. 24 p. Fifty 
cents. 

No. 4. Scientific determination of the content of the elementary 
school course in reading, by Willis Lemon Uhl. 144 p. 
One dollar fifty cents. 

No. 5. Cycles of prosperity and depression in the United States, 
Great Britain, and Germany — a study of monthly data 
1902-1908, by Alvin Harvey Hansen. 112 p. One dollar. 



UNIVERSITY OF WISCONSIN STUDIES 

IN THE SOCIAL SCIENCES AND HISTORY 
NUMBER 5 



CYCLES OF PROSPERITY AND DEPRESSION 

IN THE UNITED STATES, GREAT 

BRITAIN AND GERMANY 



A STUDY OF MONTHLY DATA 1902-1908 



BT 

ALVIN HARVEY HANSEN 

ASSOCIATE PROFESSOR OF ECONOMICS 
University of Minnesota 



MADISON. 
1921 



ft 






LIBF^ARY OF CONGRESS 
EIVED 

APR 6 1922 



CONTENTS 

Page 
Chapter I. Introduction : Subject Matter and Method.... 7 

A. Comparison between this and other Studies 7 

B. Description of Period 1902-1908 8 

C. Three Types of Fluctuations 15 

D. The Elimination of Secular and Seasonal Fluctuations 16 

Chapter II. Analysis of Monthly Data for the United 

States 20 

A. Scope of Data 20 

B. The Three Groups 22 

C. The Relation between the Groups 35 

D. Comparison with other Groupings 39 

Chapter III. Comparison of Monthly Data for Great Bri- 
tain, Germany and the United States 54 

A. British and German Data 54 

B. The British and German Investment Groups 56 

C. Comparison of the three Investment Groups 57 

D. Comparison of Bonds of the Three Countries 57 

E. The British and German Barometers 59 

F. Comparison of the three Barometers 61 

G. The British and German Banking Groups 62 

H. Comparison of the three Banking Groups 64 

I. Comparison of the Amplitudes of Fluctuation of Dif- 
ferent Series 64 

Chapter IV. The Theory of Prosperity Cycles 79 

A. Introduction 79 

B. Economic Theories of Prosperity Cycles 81 

C. Criticism of Theories 96 

D. Conclusions from the Study of Monthly Data 104 



CHARTS 

Page 
Chart 1. Investment Composite and Average Prices of 

Ten Investment Stocks 27 

Chart 2. Industrial Composite and Wholesale Prices 31 

Chart 3. Banking Composite and Cash Reserves 32 

Chart 4. Investment Composite and Industrial Com- 
posite 34 

Chart 5. Banking Composite and Investment Composite.. 35 

Chart 6. Industrial Composite and Commercial Paper 

Rates 37 

Chart 7. American. British and German Investment 

Composites 58 

Chart 8. American, British and German Bonds 59 

Chart 9. American, British and German Industrial 

Composites 61 

Chart 10. American, British and German Banking Com- 
posites 63 

Chart 11. Wholesale Prices of Producers' and Consumers' 

Goods — United States 97 

Chart 12. Wholesale Prices of Producers' and Con- 
sumers' Goods — Germany 98 



TABLES 

Page 
I. Summary of Conditions in the United States, Great 

Britain and Germany 1902-1908 15 

II. Railroad Gross Earnings, 1902-1908 19 

III. Index Numbers of Railroad Gross Earnings 19 

IV. Coefficients of Correlation between the Prices of 

Ten Investment Stocks and Other Series in the 
Investment Group 26 

V. Coefficients of Correlation between Wholesale 

Prices and Other Series in the Industrial Group.... 30 

VI. Coefficients of Correlation between the Reserves 
of the New York Banks and Other Series in 
the Banking Group 33 

VII. Coefficients of Correlation between the Series in 

the German Industrial Group 60 

VIII. Coefficients of Correlation between the Series in 

the British Banking Group 62 

IX. Coefficients of Correlation between the Series in the 

German Banking Group 64 

X. Standard Deviations of Series in the United States, 

Great Britain and Germany 65 

XI. Index Numbers of Wholesale Prices of Producers' 
and Consumers' Goods in the United States and 
Germany 100 



8 UNIVERSITY OF WISCONSIN STUDIES 

sion; second, a comparative analysis of monthly data in the 
three great industrial nations of the world, the United States, 
Great Britain and Germany. 

B. Description of Period 1902-1908 

The period selected for this study was chosen because it 
includes a well denned, world-wide cycle of prosperity and 
depression. The year 1902 was chosen as the starting point 
in order to include within the cycle not merely the trough pre- 
ceding the crisis of 1907, but also the preceding crest. The 
year 1908 was chosen as the end of the study in order to in- 
clude the succeeding depression and the beginning of the re- 
cuperation which followed. A general description of the 
period follows. 1 

The year 1902 was in the United States a period of 
general prosperity. Crops were excellent, the cotton crop 
being one of the largest on record. On the railroads there was 
heavy traffic resulting in severe congestion toward the end of 
the year. The demand for iron and steel products exceeded 
home production and there were heavy importations from 
abroad. The coal trade was disturbed by the anthracite coal 
strike. Stringency in the money market became very severe 
in September. The Secretary of the Treasury attempted to 
relieve this by substituting municipal bonds for government 
bonds as security for government deposits, thus inducing a 
great increase in the circulation of national bank notes by re- 
leasing the government bonds for use as the basis for further 
note issue. Another severe stringency occurred in December, 
which was partially relieved by the formation of a fifty million 
dollar money pool. On the stock market there was a consider- 
able rise during the first half of the year with a subsequent 
fall during the period of money stringency. Trading in bonds 
declined materially during the year. 

Foreign trade in Great Britain was adversely affected by 
the drought in India and Australia, the exhaustion of China 
alter the Boxer trouble, and the war in South Africa. A large 

i Cf . Financial Review, London Economist, and Volkswirtschaftliche 
Chronik, 1902-1909. 



CHAPTER I 

INTRODUCTION: THE SUBJECT MATTER AND THE 

METHOD 

A. Comparison Between This and Other Studies 

Two distinct differences appear between the earlier and the 
more recent books on prosperity and depression. One is a 
difference in the subject matter discussed ; the other is a dif- 
ference in method. 

The earlier writers in this field centered their entire discus- 
sion on crises. They looked upon prosperity as the normal 
thing in industry. A crisis appeared to be a pathological con- 
dition, a temporary affliction. The problem was to diagnose 
a malady. The study of crises was the pathology of Political 
Economy. The method applied was almost wholly a priori 
reasoning. 

Not until the twentieth century was the subject matter 
broadened. Quantitative studies in annual production and 
price movements revealed steady, progressive, wave-like move- 
ments beginning with a period of low prices, inactivity in trade 
and production, and culminating in high prices and great ac- 
tivity in industry and commerce. Attention was no longer di- 
rected solely to the monetary stringency of panic conditions, 
nor to the widespread inability of debtors to meet their obli- 
gations, but rather to the continuous cycles of prices, and the 
steady rhythmic waves of production. Business was no longer 
looked upon as though it were normally in a static condition 
of prosperity interrupted intermittently by cataclysmic inter- 
vals of panic and crises, but rather as a dynamic, changing 
thing which must be studied as a process. The method neces- 
sarily became statistical and historical. 

This book attempts two things, which so far as the writer 
knows, are relatively new in this field : first, a detailed analysis 
of monthly data for a single cycle of prosperity and depres- 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 9 

foreign trade was carried on however with South America and 
Turkey. The coal trade was stimulated by the coal strikes in 
the United States and France. The iron and steel industry 
supplied a strong demand from the United States and Canada, 
the United States alone importing nearly 680,000 tons of pig 
iron, rails, blooms, and billets. German competition in iron 
and steel was very severe, immense quantities being sold in 
both the United States and Great Britain frequently below 
cost of production. Depression ruled in ship-building and the 
textiles. The money market was affected by large shipments 
of gold to the United States, the Continent and Argentina. 
Open market rates ruled high. For Great Britain the year 
was a half-way stage between prosperity and depression. 

Germany suffered from depression in 1902. Crops were 
rather poor, and general business continued at a low ebb as 
in the preceding year. The stock market tended downward. 
Reserves were plentiful and money rates were very low 
throughout the year. 

Slight depression ruled on the whole in the United States 
in 1903. Crops were good but not as large as in 1902. Iron 
and steel production declined heavily toward the end of the 
year though the total for the year was good. Unemployment 
increased somewhat. Stock prices dropped severely, resulting 
in heavy liquidation and bankruptcies. Interest rates ruled 
high, loans were extremely hard to float and short time loans 
were resorted to. Funds borrowed abroad were recalled by 
Europeans. This forced the banks in turn to recall loans, 
which in turn compelled the borrower to dispose of his securi- 
ties. New capital for industrials or railroads could not be 
secured by the flotation of securities and hence retrenchment 
was the policy pursued. 

Great Britain likewise suffered during 1903. Crops were 
bad, depression ruled in ship-building and the textiles, exports 
decreased, unemployment increased, and wages were lowered. 
The coal trade was fairly steady and was supported toward 
the close of the year by heavy buying from Russia and Japan. 
The pig iron trade was helped by a good demand from Ger- 



10 UNIVERSITY OF WISCONSIN STUDIES 

many. On the stock market there was a heavy drop in govern- 
ment, railroad, and industrial securities. 

Germany fared better than the other countries in 1903, while 
she fared worse in 1902. The stock market was rising, there 
being improvement in almost every kind of security. Pro- 
duction in iron and steel ran high, foreign trade increased, 
crops were good, and unemployment diminished. 

Depression still ruled during the greater part of 1904 in the 
United States though a revival was apparent toward the end 
of the year. Railroad earnings and pig iron production ran 
low during the first few months of the year but soon recovered. 
The stock market turned upward with a great rise toward the 
last of the year. New issues were floated easily. Munici- 
palities made large bond offerings which were easily absorbed. 
Surplus bank reserves ran high and money rates ruled very 
low. 

Great Britain fared much the same as the United States. 
Production diminished and unemployment increased. Crops 
were slightly better. The colonies and municipalities had been 
unable to float bonds and public works were postponed. House 
building, which had previously gone on at a great rate, broke 
down. The cotton crop was short and factories ran on short 
time. The wool trade was poor. Spinners made scarcely any 
profit. Ship-building yards had little work until toward the 
close of the year. The iron and steel trade was injured from 
underselling by the United States due to depression there. Rail- 
road net earnings greatly decreased, dividends were cut down, 
and the companies found difficulty in borrowing. All past 
profits had been distributed in dividends, and nothing had been 
set aside for betterments. Hence retrenchment was necessary. 
Like the situation in the United States the condition of the 
stock market improved. Money rates were low. Toward the 
end of the year improvement occurred in the iron and textile 
industries. 

Germany's somewhat doubtful prosperity of 1903 declined 
during 1904. The Bourse had a severe panic in the early part 
of the year due to the outbreak of the Russian- Japanese war. 
Heavy failures resulted. Coal, iron and steel production de- 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 11 

clined, while the electrical and textile industries fared better 
than in 1903. Crops were poor in some lines but good in 
others. 

The year 1905 was a period of tremendous prosperity 
in all countries. In the United States crops were good, the 
iron and steel industry was flooded with orders, and the rail- 
roads were unable to cope with the volume of traffic offered. 
Track and equipment were both insufficient. Freight conges- 
tion toward the close of the year was very severe. Great 
speculative activity ruled on the stock exchange. Stocks were 
generally advanced, a great rise occurring in coal, iron, steel, 
and copper securities. The money market grew tense particu- 
larly toward the close of the year, due to the great activity of 
trade, big crops, large speculative movements and government 
operations. 

Prosperity returned more slowly in Great Britain. Trade 
was active in the north, but London suffered because of the 
shifting of factories from the metropolis to the coal and iron 
fields of the north. The woolen trade was good, and the cot- 
ton trade was exceedingly profitable. Ship-building gained 
ground with a rush of orders toward the close of the year. 
The iron and steel trade was good. Municipalities still found 
some difficulty in floating loans. Money rates were easy. 

Germany's condition was quite similar to that of the United 
States. Railroad earnings increased enormously as did pig iron 
production. Unemployment was reduced to a minimum. On 
the Bourse there was great activity and stock prices rose to 
an unprecedented level. Cash in the banks decreased and 
money rates advanced. Loans were greatly extended. 

The extraordinary prosperity of 1905 continued through 
1906 in the United States. Equipment and track shortage con- 
tinued. James J. Hill stated 2 that between 115,000 and 120,000 
miles of additional track were urgently needed. To provide 
this and necessary equipment he claimed was beyond human 
ability. "Why", he said, "there is not money enough, nor 
rails enough in all the world to do this thing." Said Secretary 
Shaw in December : 2 "We who pray should ask God to save 



2 Commercial and Financial Chronicle, January 5, 1907, p. 6. 



12 UNIVERSITY OF WISCONSIN STUDIES 

us from any increased prosperity." Dividends were raised by 
the Union Pacific, the Southern Pacific, the Atchison, Topeka 
and Santa Fe, the Baltimore and Ohio, the Pennsylvania, the 
New York Central, the Lehigh, the Michigan Central, the 
Lake Shore, and the Norfolk and Western. Dividends were 
renewed on the United States Steel common. Surplus reserves 
fell below the legal limit four times during the year. Money 
rates rose. Government receipts were in excess of disburse- 
ments, and the Secretary of the Treasury helped to ease the 
situation by increasing government deposits and by making 
treasury advances to banks importing gold. An immense vol- 
ume of American finance bills were floated in Europe repre- 
senting borrowing abroad. Loans at home were difficult to 
place. Syndicates formed in previous years still had unsold 
bonds. Life insurance companies were compelled to unload 
some of their securities in order to meet their obligations grow- 
ing out of the San Francisco earthquake disaster. 

Great Britain's exports for 1906 were extraordinary. The 
greatest expansion occurred in the iron, steel and machine in- 
dustry. Iron and steel were demanded in large quantities by 
Germany and the United States. This year marked the high- 
est record ever reached for the importation of iron ore, the 
production of pig iron, the output from steel works, the exports 
for manufactured iron and steel, and shipping tonnage 
launched. The coal trade was also enormous due to the ex- 
treme prosperity particularly of the United States and Ger- 
many. The textiles were unable to meet the demand. Eighty 
of the large spinning companies averaged profits of about 18 
per cent. Money was dear and scarce due to the strong de- 
mand from other countries for London gold. The bank rate 
was advanced to 6 per cent in October particularly to stop the 
large demand from New York. Russia, Germany, Egypt, 
India, Argentina and Brazil were also helping to drain the 
supply. The security market began to decline. 

Germany's prosperity continued. Railroad earnings and pig 
iron production continued at the high levels reached at the 
close of the preceding year, and unemployment sought a still 
lower level. Loans were greatly extended by the Reichsbank. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 13 

Reserves declined, and the already high money rates were 
raised. 

The industrial activity of the two preceding years continued 
in the United States until October, 1907. Pig iron produc- 
tion, railroad gross earnings and imports rose steadily higher. 
Industries generally flourished. Security values had been 
shrinking since the close of 1906. Corporations found it im- 
possible to float bonds advantageously, and were compelled to 
resort to short time notes. The New York Central issued 
$50,000,000 three-year 5 per cent notes, and the Pennsylvania 
$60,000,000. Tension continued in the money market, par- 
ticularly in June owing to large gold exports and treasury 
withdrawals. Finally came the disclosure of the affairs of 
the Mercantile National Bank of New York which had loaned 
heavily on copper securities. A run occurred on banks, first 
in New York, and later spread to other large cities. Many 
banks were compelled to close their doors. Cash could be se- 
cured only at a premium ranging from 5 per cent at the begin- 
ning of the period to 1 per cent toward the close of the year. 
Clearing-house certificates, and cashiers' checks were used as 
substitutes. The Treasury poured its resources into the banks, 
gold was imported in large quantities, and bank note circula- 
tion was considerably extended by the issue of Panama Canal 
bonds. After the panic, time loans were practically unobtain- 
able for the rest of the year, though they were quoted at from 
10 to 12 per cent. 

In Great Britain, also, trade continued very prosperous for 
the greater part of the year. Her coal trade was greater than 
ever. Germany was so exceedingly prosperous that she re- 
quired for her industries almost as much British coal as did 
France in spite of her large home supply. South America, 
Egypt and Europe increased their demand for coal. The iron 
and steel trade was equally fortunate during the first half of 
the year. Germany and the United States still continued to 
buy large quantities of these products, though this demand of 
course fell off at the close of the year. The copper trade was 
very good during the first half of the year, owing to the elec- 
trification of railroads and the very large expenditures all 



14 UNIVERSITY OF WISCONSIN STUDIES 

over the world for ships and guns. The spinning trade was 
even more prosperous than the year before, scores of com- 
panies paying dividends of 30 to 35 per cent, and many others 
paying 18 to 20 per cent. A large demand came from the 
continent, continental spinners being unable to supply the local 
demand. New mills were being rapidly built. Ship-building 
suffered a considerable falling off from the preceding year. 
The stock market was depressed all during the year, with 
prices falling steadily. Heavy selling occurred in March and 
again in August. New security issues were not taken by the 
investing public, very large proportions being left on the hands 
of the underwriters. The high money rate of the preceding 
year was lowered to 4 per cent in April, and in August raised 
again to 4^ per cent. The panic in the United States forced 
it up to 7 per cent. France, Germany and Japan all helped to 
supply the London market with gold while London, in turn, 
was shipping enormous quantities to New York. 

Germany's industrial activity continued to increase until Oc- 
tober. Railroad gross earnings reached the highest figure in 
October as did also pig iron production. Unemployment 
reached its lowest point in September. Tension continued on 
the money market and rates averaged very high. Stocks de- 
clined rapidly during the course of the year. 

The year 1908 was a period of deep depression in the United 
States. Pig iron production was reduced to almost one-half of 
the production of the preceding year. Imports were reduced 
by over $300,000,000. Bank reserves rose to a high point and 
money was obtainable on very easy terms. The security market 
recovered rapidly during the entire year. Large issues of new 
securities were placed. 

In Great Britain depression, low profits, and unemployment 
prevailed. The iron and steel trade was greatly depressed. 
The pig iron market especially felt the lack of any demand 
from the United States and Germany. Ship-building was al- 
most paralyzed. The weaving branch of the cotton trade was 
very bad, though spinning was fairly good. The woolen trade 
suffered severely owing to large accumulation of goods in 
other countries and particularly in the far east. New issues 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 15 

of securities were floated on an enormous scale. Still the stock 
market recovered slowly in spite of the rapidly rising market 
in the United States. Money was cheap throughout the year. 
Recovery became faintly evident late in the year. 

Germany's history in 1908 is in the main similar to that of 
the other countries. Her production of pig iron declined 
though it was reduced by only one-tenth as compared to one- 
half in the United States. Railroad gross earnings also di- 
minished some, but not severely. Unemployment was very 
great throughout the year. Wholesale prices dropped steadily 
until November. A slight revival of industrial activity was 
noticeable toward the close of the year. The stock market 
alone showed signs of marked improvement, the trend being 
upward from March on. 

A skeleton summary of conditions is given in Table I. 

TABLE I 



United States 

1902 Prosperity 

1903 Depression 
(partial) 

1904 Depression 

1905 Prosperity 

1906 Prosperity 

1907 Prosperity 

1908 Depression 



Great Britain 
Semi-prosperity 

Depression 

(partial) 

Depression 

Prosperity 

Prosperity 

Prosperity 

Depression 



Germany 

Depression 

(partial) 

Semi-prosperity 

Depression 
Prosperity 
Prosperity 
Prosperity 
Depression 



C. Three Types of Fluctuations 



Three kinds of fluctuations are involved in financial and in- 
dustrial statistics, the seasonal, the cyclical and the secular. 

The seasonal fluctuations are those which are due to the in- 
fluence of the seasons, summer and winter, harvest and seed 
time. The seasons affect very greatly the prosperity of the 
clothing industry, railroad earnings, the coal trade, bank re- 
serves, unemployment, and so on through the entire realm of 
business activity, though in some fields the influence of the 
seasons is less marked than in others. Railroad gross and net 
earnings, for example, invariably rise to the highest point in 



16 UNIVERSITY OP WISCONSIN STUDIES 

the fall of the year ; building invariably reaches the highest 
point in the spring of the year, and exports are regularly great- 
est in the fall. The seasonal fluctuations are therefore the 
short-time fluctuations which come and go with the seasons, 
and are due to the seasons. 

Cyclical fluctuations are those due to the recurring waves of 
prosperity and depression. They have nothing to do with the 
seasons. Each cycle, from the crest of one wave to the crest 
of the next, is spread over a period of years. The cause or 
causes of these cycles lie obscured in the mazes of modern in- 
dustry, explanations ranging all the way from meteorological 
cycles on the one hand to cycles of mob psychology on the 
other. 

Secular fluctuations are mainly those due to the growth fac- 
tor in progressive societies. Thus while railroad gross earn- 
ings for example rise and fall with the seasons, and in larger 
waves rise and fall with the cycles of prosperity and depres- 
sion, each succeeding crest in the cycles seeks higher and higher 
levels because the country is rapidly growing in population, 
production and wealth. But some secular fluctuations are in- 
dependent of the growth factor. Thus secular fluctuations in 
general prices may be due to changes in the issue of currency, 
increasing or decreasing production of gold. Hence secular 
fluctuations are the very long-time changes which in progress- 
ive countries generally are in the direction of growth. 

D. The Elimination of Secular and Seasonal 
Fluctuations 

A study of cycles of prosperity and depression is of course 
concerned with the cyclical fluctuations alone. We are not in- 
terested in the actual fluctuations in which are combined the 
seasonal, cyclical and secular movements, but only in those 
phases of the fluctuations which are due to cyclical causes. 
Hence, in order to study the fluctuations of prosperity and de- 
pression in the most advantageous manner it would be highly 
desirable to eliminate from the actual data the fluctuations 
which are due to seasonal or secular forces. If annual data 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 17 

are used, seasonal fluctuations do not appear. Hence only the 
secular fluctuations need be eliminated. Over a long period 
of time the secular fluctuations would be very considerable, 
and it would become highly desirable if not essential to elim- 
inate them in order to concentrate attention on the cyclical 
changes. If the period considered is of short duration, the 
growth factor becomes less apparent, and may therefore more 
safely be disregarded. Especially is this true if the series 
under consideration have similar secular trends. On the other 
hand if the secular trends of two series are in opposite direc- 
tions it may become necessary to eliminate the secular trends. 
In comparing the Banking Group with the Investment Group, 
and the Investment Group with the Industrial Group it was 
found desirable to eliminate the secular trends. Likewise in 
comparing the American composites with the European com- 
posites the trends were eliminated. The secular trends were 
determined by the method of moments. 

The seasonal fluctuations also tend to obscure the cyclical 
movements. By eliminating the seasonal fluctuations the 
curves are smoothed out and the cyclical correlation between 
the series becomes more apparent. When the Pearsonian co- 
efficient is used to establish correlation it is true that the cyc- 
lical correlation is vitiated but little by the seasonal fluctua- 
tions. Nevertheless some gain results from the elimination of 
the seasonal fluctuations. 

That seasonal fluctuations should be eliminated might be ob- 
jected to on the ground that even seasonal fluctuations have 
their influence on cyclical movements. The position taken by 
the writer is that this is true only of extraordinary fluctuations. 
Normal seasonal fluctuations could obviously never operate as 
influences affecting the cyclical movements. Extraordinary 
seasonal fluctuations would however influence the cyclical 
movements, but such extraordinary fluctuations over and above 
the normal are not eliminated by the method used in this study. 

The method here used is to construct relative or index num- 
bers from the actual data by using a new base for each of the 
twelve months of the year. The average of the actual figures 



18 UNIVERSITY ov WISCONSIN STUDIES 

for each January in the seven-year period is used as the base 
for January data, the average of the actual figures for the 
seven Februarys is used as the base for February data and 
so on. Thus the average of all the January figures is divided 

into the figure tor each January, and similarly for each of the 
other months oi the year. In this way the normal monthly 
fluctuations as nearly as they could he judged by a seven-year 
period are eliminated, hut any extraordinary fluctuation in any 
one month would still remain in so far as it was above nor- 
mal. The method may be illustrated by giving the computa- 
tions for a single scries, via., railroad gross earnings. The 
actual monthly data are given in Table II. The averages 
given in the right hand column are then used as bases, each 
base being divided into the actual figures for that month for 
each of the seven years. Table III gives the result of this 
computation. By reducing the actual numbers into relative 
numbers using the twelve averages for each month as bases, 
the seasonal fluctuations have been eliminated. The numbers 
for each month were summated to verify the result. Obviously 
the sum in each case should equal 700.0 but the use of the 
slide rule as well as the fact that the index numbers are car- 
ried out to only one decimal place makes this degree of ac- 
curacy impossible. 



HANSEN CYCLES OF I'HOSI'KIUTV AMI) DFOI'FtNSSION 1!> 






S 



CD »f OI 'O CO CO 'f 'O CO <0 »t< >C 
M 0> "O CO ■* CT/5 O CI CO C! '/.■ 



oi vi 'i> CD ■— I OS I— T cy irj v-i <-J 

oyjClcj'fl'iOOfflcomi- 
CiiOI-c3l-0105if5rtOC3cO 



■^CS'T'OCOCOCOOlCOCO'f— ' 

o> o co *t» co cp oi 0> co © 00 fh 

lO CO iC t - iH O CO O) I - '/) CO CO 



hc-Ih |, O C31 CO 'O CD "f CO OS 



-+< -f CD >C "Ct* O CO >-i CD CO iO "O 

co <-< co co cd co i *- co cd 5 1 g> g> 

lO't^Ntcmi-'i'iociOoi 



O t^- iO CO -* 'O »f GO O CO 01 O 
TfcO'»l 1 Tt< - ^'1 ,,, ct , -t<iOiC>0»0 



t-CTHO-^^-iCO'fi'rcO— i 01 CO 

0!tH©NO>c4i<5oioci 

OS t^ t - ID CD GO >0 "C 0) 0) O •** 



•-I OS GO OS i-H CO CD CO 01 CO OS OI 
CD r^ CO >D t^ <-i O CD CD CO -h GO 
CD iOhcDMI- GO © GO CD GO -~< 



a ( 



~f © Os iD CD OS CO CO OS CD CD © 
'OS CD ~ OsiO 
- -f 1- 01 I- I- 



8 



fr£ 



S§J5g1 



a JO — I a._ g g „j ^ O O 



I 



o 

pi 

w 

53 

o 
o 


o 
pj 

pj 
o 

a 
pq 

y 
Q 



•o -^ oi io co co -r 'O co 'O *c* >o 

-I'/jcc^fa^o^i-i-'o 
C I 95 io co -t< oi go © o i co o i co 





wtoooooinfiHOcO'OH 


s 

OS 


8$&8SS852$g3 




o on oi os r-< o »* oi © r- o o 


O 

Os 


-r -r -r i - © (0 00 -r 0) o. -* g> 
cicici cicocicici ' h '- ' •— io 




or-'H-ccficocoiooooiN 


S 

OS 


io co oi co os o >-i o r - ^h o "f 





CO GO t~ CO b- CD OS GO O. I- CO OI 

COCOOSGOGOQl^GOQCSCO^r 
O-OSOSOSOSOOSOSOOSCO 



co "3 in io 't •* io os h i>. co o 

|,^HrtCiCcOCOC'lC71COCO 
GO OS Os OS GO OS GO GO O' GO OS Os 



CO CO CO OS GO 1- ID O CO OI OI OI 



CO 01 1^ t^ OI 1^ CO CO CI OS CO CO 

OS CO t}«' 00 © CO CI © ^- 01 .-i CO 
I , I - I , I , GO I - GO GO GO CO GO CO 



3 5 a S « a ^ SP 5.-S S S 

~ Oi »5 O-JS 3 13 3 O '-> P 2i 



CHAPTER 11 

THE ANALYSIS OF MONTHLY DATA FOR YUV. 
UNI IT.n STATES 

A. Scope of Data 

Twenty-three series of monthly data for the United States 
were selected tor study and analysis. They are as follows: 1 

1. Commodity Trices at Wholesale. 

2. Prices of Consumers' Goods at Wholesale, 

o. Trices of Producers' Goods at Wholesale. 

4. Trices of Ten Investment Stocks.* 

5. Trices of Torty Transportation Common Stocks. 

6. Trices of West Shore Railroad Tend. 

7. Trices on Ten Leading Railroad Bonds. 1 

S. Shares Traded on the New York Stock Exchange. 

9. Liabilities of Business Failures. 

10. Building Permits in Twenty Leading Cities. 

11. Production of Tig Iron. 

12. Railroad Cross Earnings 

13. Railroad Net Earnings. 

14. Exports. 

15. Imports. 

16. Unemployment. 

17. Immigration. 

IS. Total Tank Clearings, the United States. 

19. Cash held by New York Clearing-House Banks. 

SO. Loans of New Y'ork Clearing-House Banks. 

21. Deposits of New Y'ork Clearing-House Banks. 

22. Call Loan Rates 

23. Trime Commercial Paper Rates 



s' and producers' goods were obtained from the Bat- 

. the V S Department of Labor. January-May. 1912, pp. 5SC 
Prices of Forty Transportation Stocks ana the West Shore u 
Bonds were obtained from W. C. Mitchell, Husmcss Cic.Y.* i Berkeley. 
1913) 212-213, Call loan rates were also obtained from Mitchell, pp. 
16S-16S. 
The figures for Unemployment wore obtained from HorneU Hart, 

Nee in the V $ , 0M to I9tf. Helen S. 
Stlne Foundation, Cincinnati. Ohio. 
All otter data were obtained front Rabson's Pes' - | ."::.'e.< 

Investment Stocks are Central of Xew Jersey ; Chicago. Mil- 

.■i St. Paul : Delaware A Hudson ; Great Northern „* On 

- Central; Louisville A Nashville; N'ew York Central. X. Y.. N. H. 
& Hartford . Pennsylvania ; Pullman. 

'The Ten Ponds are Atchison. Top. A S. Fe Qen. 4'* : Baltimore .v OhK) 
1st t's: Centra) of Georgia Cons. 5*s; Central of N J Qen. 5*s; Chicago A 
Alton Reft I'a; Col A Southern 1st 4's: N Y Central Rel 

Fran. Rat 4s. Southern Ry. Cons. 1st 5*s: Wabash 1st 5s. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 21 

Plere is a heterogeneous group of statistical series all of 
which are related in a causal way somehow or other to the 
cycle of prosperity and depression. The problem before us 
is to ascertain their relation to that cycle and to each other. 

The raw figures in the incommensurable terms of tons, dol- 
lars, per cents, etc., are not usable. They must be reduced 
to a common denominator to make them comparable. This 
may be done by reducing the actual figures to relative figures, 
or index numbers. The seasonal fluctuations which confuse 
and obscure the cyclical changes must also be eliminated. Both 
of these ends were accomplished by reducing the actual data 
to index numbers by means of the method described in the 
last chapter. 

If these index numbers are plotted it will be seen at once 
that out of the chaos of incomprehensible raw figures which, 
disturbed by the seasonal fluctuations, seemed to move in all 
sorts of directions, an orderly trend of cyclical fluctuations 
appears. The next problem is to analyze and classify the place 
of each series in the cycle of prosperity and depression. 

All the series rise and fall with equal wave lengths, but they 
do not rise and fall synchronously. Which rise first, which lag 
behind and how much? Which series forecast prosperity, 
which indicate prosperity and which, if any, may be said to 
be the moving forces of the entire cycle movement ? 

Here must be applied tests of synchronous correlation, which 
can only be worked out very roughly by comparing the plotted 
curves of the index numbers of the different series. In order 
to determine correlation more definitely, mathematical formulae 
of correlation become necessary. The Pearsonian coefficient 
is the method here used to establish correlation, and to de- 
termine whether the series are synchronous or whether there 
is a lag, and if so how much of a lag. 

Two points may be noted with regard to the coefficients that 
appear in the following pages. First, the nearer the coefficient 
approaches +1 or — 1 the more perfect is the evidence of 
direct or inverse correlation. It is of course evident that if a 
small number of items are used a high coefficient may be purely 
accidental. The larger the number of items used the smaller 



22 UNIVERSITY OF WISCONSIN STUDIES 

is the probable error. In the present study 84 items are used 
which makes the probable error for any fair sized coefficient 
very small. For instance, the coefficient of correlation be- 
tween call loan rates and cash reserves is — .477. and the 
probable error is ±.048. This is very nearly the smallest co- 
efficient and the largest probable error in the entire study. In 
this case the coefficient is nearly ten times as large as the prob- 
able error. In short in this study a coefficient of .475 repre- 
sents good correlation, while .600 or above indicates very high 
correlation. 

In the second place it may be noted that several coefficients 
are given for each series, indicating the coefficient for varying 
lags. Examination of the tables will show that the coefficients 
increase to the point of maximum correlation and then stead- 
ily decline. In other words the highest coefficient would indi- 
cate the degree of lag if there is any. 8 " Thus if two series fluc- 
tuate synchronously the coefficients of correlation would be 
highest for concurrent correlation, somewhat smaller for a lag 
of one month, and still smaller for a lag of two months. Thus 
the coefficients would become steadily larger until the two 
series were concurrent, and then steadily decrease again. In 
this study coefficients are scarcely necessary to prove the exist- 
ence of correlation. They are used largely for the purpose 
of determining whether or not the series are synchronous, or 
whether one lags behind the other, and if so how much. 

B. The Three Grouts 

A large number of correlations were worked out between 
the twenty-three series to test the relative position of each 
series in the cycle of prosperity and depression. Through this 
process, from the twenty-three series were finally selected 
three main groups which may be termed the Investment, In- 
dustrial, and Banking Groups. The Investment Group in- 
cludes series that anticipate general prosperity or depression 
and are related to the investment market. The Industrial 
Group includes those series which constitute the very essence 
and substance of prosperity and depression ; it is the touch- 



3a Cf. W. M. Persons, "Construction of a Business Barometer." Am. 
Econ. Rev., December, 1916, p. 750. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 23 

stone, the barometer of good and bad times. The Banking 
Group represents the monetary and credit facilities, the tools 
and instruments of the modern business mechanism. 

1. THE INVESTMENT GROUP 

The following series were classified in the Investment 
Group : 

1. Prices of ten investment stocks. 

2. Prices of forty transportation stocks. 

3. Shares traded on the New York Stock Exchange. 

4. Total bank clearings. 

5. Liabilities of business failures. 

6. Building permits. 

7. Railroad net earnings. 

8. Prices of ten railroad bonds. 

The index numbers for the different series in this group are 
given in Table A in the Appendix to this chapter. 

Here are classed two types of series: first, forecasters of 
prosperity representing the capitalization or valuation of pros- 
pective profits ; second, forerunners of general prosperity or 
depression. 

In the first mentioned type belong the two series of stocks, 
the railroad bonds, the volume of shares traded on the stock 
exchange, and the liabilities of business failures. These series 
are closely related to the stock market. The stock market is 
an institution where specialists armed with every available in- 
formation are engaged in the work of determining the trend of 
profits in business. The resulting stock market prices are the 
capitalized value of the anticipated profits. To the superficial 
observer it appears as though the stock market prices are the 
result of the arbitrary bidding of wild speculators. But the 
man on the stock exchange knows that he is dealing with an 
objective reality which rests on solid facts, and in so far as 
he misjudges these facts he will most certainly crash up against 
a stone wall. The stock market is not the arbitrary product 
of a few hundred individual minds. It rests on the solid basis 
of earnings, earnings however which are not patent to all, but 
which lie obscured in the future. It is the speculators' busi- 
ness to forecast what they will be. Selwyn-Brown puts it 



24 UNIVERSITY OF WISCONSIN STUDIES 

well as follows : "The leading investors on the stock ex- 
changes are among the largest bankers, corporation directors 
and business men in the country. They are in close touch 
with developments all over the world. Their agents and in- 
formation bureaus enable them to watch every small change 
in corporation earnings and expenditures, crop values and pros- 
pects, the state of the money market. They are the great dis- 
counters of the future. . . . "* 

To the second type, the forerunners of prosperity and de- 
pression, belong bank clearings, building operations, and rail- 
road net earnings. They do not represent the anticipation of 
prospective profits as do stock prices, but are rather the ad- 
vance guard of prosperity or depression. 

Bank clearings represent on the one hand activity on the 
stock exchange, and general industrial activity on the other 
hand. Hence this series falls in point of time between the 
Investment Group proper and the Industrial Group. Bank 
clearings therefore anticipate general industrial activity. 

Building operations feel the effect of the new turn in affairs 
sooner than general business. The growing demand which 
ushers in prosperity first makes itself felt in new construction 
work. This is the necessary preliminary to a general exten- 
sion of business and industrial activity. Likewise when de- 
mand begins to fall off the building industry is first affected. 
When bank credit begins to contract and discount rates are 
high, available capital will be utilized for the operation of busi- 
nesses already greatly extended. Construction work on a 
large scale in such periods would be decidedly inopportune. 

Railroad net earnings anticipate general prosperity condi- 
tions by a few months. Railroad gross earnings on the other 
hand move synchronously with general prosperity conditions. 
Net earnings probably tend to anticipate gross earnings in the 
railroad industry somewhat more than in other industries due 
to the fact that in this industry, unlike others, the selling prices 
(rates) are fixed, while costs mount up as in other industries 
during the period of prosperity. Gross earnings continue to 
rise so long as the volume of traffic increases, but when costs 



* Selwyn-Brovvn, "Economic Crises and Stock Security Values," Annals 
of the American Academy of Political and Social Science, XXXV, 636-645. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 25 

begin to mount up net earnings are cut into. In other indus- 
tries gross earnings are increased not only by the greater vol- 
ume of business but also by the rise in selling prices. Costs 
lag behind selling prices at first, but toward the close of the 
period of prosperity rise more rapidly than selling prices. Thus 
in all industries net earnings tend to precede gross earnings. 

The average prices of ten investment stocks were taken as 
the best single representative of the Investment Group and it 
was correlated with each of the other series. Table IV gives 
the coefficients of correlation between each series and the ten 
investment stocks. Correlation was tried in each case with the 
ten investment stocks preceding the other series by one or more 
months, then making the two series concurrent, and then lag- 
ging the ten investment stocks one or more months. This was 
done in order to determine the point of highest correlation. 

It now appears that between the first three series in our 
group — the average prices of the ten investment stocks, the 
average prices of the forty transportation stocks and the shares 
traded, the highest correlation exists when they are perfectly 
concurrent. The liabilities of business failures precedes one 
month. Bank clearings and building permits lag three months 
behind, and railroad net earnings lag six months behind. 

Three series then correlate synchronously, while one series 
precedes the rest by just one month. The fluctuations of four 
of the series in the general Investment Group are then sub- 
stantially synchronous. These four series were combined to 
form a single Investment Composite. The natural method of 
doing this would be to find the average of the index numbers 
for each month. But here a difficulty arises. In some series 
the fluctuations are much larger than in others. If all the 
relative figures were summated for each month and an aver- 
age struck, the series having the widest fluctuations would be 
given greatest weight in the composite series. In order to ob- 
viate this difficulty and give each series approximately the same 
weight in the composite, the fluctuations in the different series 
were reduced to approximately the same amplitude. This re- 
sult was accomplished by the following method. The devia- 
tion of each item from the average was divided by the standard 



26 



UNIVERSITY OF WISCONSIN STUDIES 



O 

>—i 

H 

< 
■J 
- 

Pi 
Pi 
c 
o 

fa 
o 

CO 

H 

w 
o 

I— I 

fa 
fa 
w 
o 
u 

I 

> 

•—I 

w 

ca 



+ 



'QQ 



a 

oc V 

-w a 






a> O 
cdOQ 

Ji 
Is 

-c a 

■*-> 
cS C 

u 



•c.« 
a: c. 



6 














o 


a 
















t^ 
















+ 














+ 


c 














P 


a 














c^ 


CO 
















+ 














+ 


6 














Hi 


a 














' 


IQ 
















+ 










1 




4 1 


6 










■" 


a 


> c«s 


a 










"" 


< r> 


OS 










1 kr 


> •* 


CO 


+ 










4 


- 4 


• 4 1 


6 










t> 


©, 




a 














i 


CO 
















4- 










4 


- 4 




6 










a 


) c 




a 










c" 


t> 












IT 


■«* 




<N 
















+ 










4 


- 4 




6 


o 


cN 


o> 


r^ 


Cs 


V 




a 


Oi 


V 


OS 


IT, 


« 


IC 




00 


u! 


Tj< 


t* 


IT 


It 




+ 


4- 


4 


■ 1 


4 


- 4 


- 4 






** 


c 


o 


ss 


« 


^ 




6 


o 


pe 


<N 


9 


^~ 


M 




a 


OS 


^ 


m 


t^ 


« 


-<t 




o 


4- 


-1 


■ 1 


4 


■ 4 


- 4 




o 


lO 


a 


©5 


| 


OC 


.- 




a 


1^ 


£ 


^J- 


c 


<N 




00 


u- 


I© 


OC 


•** 


T* 




7 


4- 


4 


" 1 


-r 


- 4 


■ 4 




o 






i—> 


oc 








a 








§ 








T 






1 


4 








c 








a 








a 








5 








T 








4 














GO 
















0J 
















(-. 
















a 
















































si 












00 




fa 








& 




o 




CO 








a 




o 

CC 




1 

CD 






$ 


1 




a 

o 

a 
a 

o 
O 
>> 

o 


s 

p 

i 


i 

CO 

.2 
IS 

c3 


T 
c 

c 
£ 

c 
5 


cc 

E 
_c 

t 



c 
ce 


D f 
.£ 

'5 


2 

i 

1 'S 

1 




fa 


X 


3 


H 


a 


ca 


es 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 27 



deviation of that series. Thus the items of each series were 
reduced to new relatives, the standard deviation being used as 
the base. The standard deviation was used in preference to 
the average deviation because it gives greater weight to the 
extreme deviations, and therefore serves to equalize more per- 
fectly the fluctuations of the different series. 

The relatives for the composite thus constructed may be 
found in Table D, Appendix to Chapter II. In the case of the 
liabilities of business failures the signs were reversed since 

CHART I 



3.00T 




3„.QQr 



1002 1903 1904 1905 1906 1907 1908 



this series correlates inversely with the rest in the group. The 
correlation between the composite and the Ten Stocks is shown 
eraohicallv in Chart 1. 



graphically in Chart 1. 



28 UNIVERSITY OF WISCONSIN STUDIES 

2. THE INDUSTRIAL GROUP 

By preliminary tests of correlation I attempted in the second 
place to classify those series which seem the best indicators of 
prosperity and depression. Here we are interested in those 
series which constitute the essence of industrial activity. 

Obviously one such series would be the production of pig 
iron. In this age of steel no better barometer of prosperity 
and depression could be found. Pig iron is the basic material 
of the modern machine age. It is therefore a sensitive indi- 
cator of industrial prosperity. 

But most writers on crises and prosperity cycles have se- 
lected by general accord commodity prices at wholesale as a 
universal and dependable indicator or barometer of industrial 
conditions. Because of the somewhat greater uniformity of 
the fluctuations of commodity prices I have selected it as the 
standard series of this group. 

Of the remaining series under examination it was found that 
railroad gross earnings, imports, exports, unemployment and 
immigration belong to this general group. Railroad gross 
earnings would be expected to be a fairly good indicator of 
industrial conditions. The volume of transportation naturally 
varies with the volume of production, and with relatively fixed 
rates the gross earnings of railroads may be expected to vary 
with the volume of transportation. 

Imports and exports increase with increased prosperity be- 
cause the volume of production is greater both at home and 
abroad. The increase in production results in a greater vol- 
ume of exchanges between countries. 

Unemployment and immigration are closely bound up with 
industrial activity and belong to this general group. With a 
slowing down of the industrial machine, workers are thrown 
out of a job, and prospective immigrants are warned to stay 
at home. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 29 
To the Industrial Group therefore belong the following: 



1. 


Commodity prices at wholesale. 


2. 


Production of pig iron. 


3. 


Railroad gross earnings. 


4. 


Imports. 


5. 


Immigration. 


6. 


Unemployment. 


7. 


Exports. 



The Index numbers for these series are given in Table B. 

Each of these series was correlated with wholesale prices 
which was taken as the standard representative of the group. 
The coefficients of correlation are given in Table V. 

From this table it appears that gross earnings and immigra- 
tion fluctuate concurrently with wholesale prices, while produc- 
tion of pig iron and imports precede wholesale prices one 
month. The exports series lags four months behind wholesale 
prices. Unemployment precedes prices three months. Rail- 
road net earnings has been included in the table. It will be 
noticed that it precedes prices four months. 

Unemployment, as was noted above, does not seem to corre- 
late synchronously with wholesale prices. This seems some- 
what puzzling as one would expect unemployment to be a very 
clear barometer of prosperity and depression, being in fact the 
very reverse of industrial activity. This may possibly be ex- 
plained in part at least by the fact that the building series 
precedes the industrial group by several months. The slack- 
ening of building operations would affect unemployment. The 
same is doubtless also true of other industries in the class of 
pure producers' goods. 

The five series which are substantially concurrent, viz., 
wholesale prices, production of pig iron, railroad gross earn- 
ings, imports and immigration, were then combined to form 
the Industrial Composite. The method used was the same as 
the one described above. New relatives were constructed with 
the standard deviation being used as the base. The results 
are given in Table D. The composite and wholesale prices 
are shown graphically in Chart 2. 



30 



UNIVERSITY OF WISCONSIN STUDIES 



§ 

a 

< 



o 
55 



o 

M 

< 

s 

PJ 



o 
IS 

w 

I— t 

o 

I— « 

(* 

w 
o 
u 

I 

> 

w 
« 





6 












o 








a 


















<•■> 


















+ 










+ 






6 










oo 








a 










«5 








rf 


















+ 










+ 






fet 


















-Q 


a 










5 
t^ 






'C 


CO 
















c. 


+ 










+ 






ju 


















"3 


















J 

Q 


d 

a 
















,4 


-m 
















i* 


+ 










+ 






+ 


d 




a 


s 




5 eo 


s 




•g 


t» 


So 


oo 




J t^ 


lO 




c 


+ 


+ 


[ 


+ 




h + 


1 




9 


































& 




s 


<— i 


N. 


Q 


> *ra 


S3 




6 


O 


s 





> <N 


C^ 




J 


a 


r^ 


00 


00 


«s 


J t^» 


<c 




hi 

C 


© 


+ 


+ 


+ 


H 


- + 


1 




T 


d 


^ 


io 


t* 


01 


- 


CO 




8 
i 


a 


£ 


06 


3 


0< 


i 

> 






1 


+ 


+ 


+ 


H 




1 




















s 


d 


iO 


fi 








lO 




8 


a 




$ 








o 




J3 


1 


+ 


+ 








l' 




d 

a 














3 


r^ 












*^ 


*>. 




T 












f 


+ 


d 

a 












5 
















t- 


^ 




T 












1 


+ 


d 

a 














5 




U3 

1 














+ 


JS 






















— - 






















* 8 




a 
c 






a 










a 


"?'C 




B 

>-* 






E 










.a 


2* 

.2 c 

8| 




be 

o 

□ 
c 






a} 

w 

E 




e 






C 

V 

a 
>> 


e 

3! 

2 


1* 




1 


1 


"S 

o 


Bl 

6 


■ 

C 
C 


c 
"5. 

a 

s 


"8 

o 

hi 






S 

- 


J 




'3 
PS 1 


E 


1 &] 




c 


1 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 31 
CHART 2 




2.50 



3,00 1902 1903 1904 1906 1906 1907 1908 



3. THE BANKING GROUP 

The third grouping derived from the twenty-three series 
through tests of correlation was the Banking Group. To this 
group belong the reserves of the banks, bank deposits, bank 
loans and discounts, call loan rates and commercial paper 
rates. The index numbers for these series are found in 
Table C. 

For our period direct correlation is found to exist between 
the first three series named. When bank reserves are large 
it is found that bank loans and deposit liabilities are increased. 
With diminished reserves it is found that loans are contracted 



32 



UNIVERSITY OF WISCONSIN STUDIES 



and with that goes a diminution of bank deposits. The re- 
maining two series in the group correlate in inverse ratio with 
the rest of the group. Money rates are high when bank re- 
serves are depleted, and low when there is a plethora of funds. 
Bank reserves, deposits and loans drop during the period of 
prosperity and find their lowest level at the crisis period, while 
they rise during the period of depression. Money rates on 
the other hand rise during the period of prosperity and fall 
after the crisis and during depression. 



3.00 



CHART 




3 . 00-S 



1904 1905 



1902 1903 i9v* *»vv 1906 iLgo? 1903 
Reserves were selected as the best single representative of 
the group. Coefficients of correlation were worked out be- 
tween it and the other series testing various lags as before. 
The results are given in Table VI. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 33 



+ 



J2 



+ 



fa 

p 

o 
fa 
o 

o 

M 

< 

1 

O 

i— ( 
H 
<< 
iJ 
fa 
Pi 
Pi 

o 
o 

fa 
o 

w 
H 

S 
o 

fa 
fa 
w 
o 
o 



+ 

-a- 

c 



+ 



+ 



fa 



+ 



a 

CO 
CO 

+ 



+ 



+ 



5c 

05 

+ 



+ 



> 

fa 
l-a 
« 



fa 



O 



Ph 



pa 



34 



UNIVERSITY OF WISCONSIN STUDIES 



From this table it is clear that reserves, deposits, loans, and 
call loan rates have synchronous cyclical fluctuations. The 
commercial paper rates series lags three months behind. 

A Banking Composite was next constructed. For this com- 
posite I selected the three closely related series — cash reserves, 



3.00, 



CHABT 4 




1902 



1905 



1908 



loans and deposits. Call loan rates correlate synchronously 
but inversely with the banking series named above, and might 
well have been included in the composite. However I con- 
cluded to present separately the movement of money rates as 
it actually occurs without inverting the series. Hence the com- 
posite includes only the series that correlate directly with cash 
reserves. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 35 

The Banking Composite was constructed by the method al- 
ready described. The relatives for the composite are given in 
Table D. Chart 3 shows the fluctuations of the composite 
and the cash reserves. 

3.00r CHABT 5 




3.00 



1902 1903 1904 1903 1906 1907 1908 
C. The Relation Between the Groups 



The question now arises : What is the chronological relation 
of the three series — the Investment Group, the Industrial 
Group and the Banking Group — to one another ? It is not the 
purpose at this point in the discussion to enter into the theory 
of their causal relations to each other. That will be treated 
fully in Chapter IV. The purpose here is merely to ascertain 
their position chronologically. 



36 UNIVERSITY OF WISCONSIN STUDIES 

Charts 4 and 5 show the relation between the industrial, in- 
vestment and banking composites. In these charts the secular 
trends have been eliminated by the method of moments. The 
relatives appear in Table K, Appendix to Chapter III. The 
Industrial Composite lags behind the Investment Composite by 
several months. It will be noticed that the lag is very much 
more marked at the crest of the wave than it is at the trough 
of the wave. 

The relation between the Banking Composite and the Invest- 
ment Composite appears in Chart 5. The Investment Com- 
posite lags considerably behind the Banking Composite. Again 
it will be noticed that the lag is much more pronounced at the 
crest than at the trough of the wave. 

Chart 6 has been added in order to show the relation of dis- 
count rates to the business cycle. In this case the secular 
trends are not eliminated. It will be remembered that call 
loan rates correlate synchronously but inversely with cash re- 
serves, loans and deposits. Commercial paper rates also corre- 
late inversely, but lag three months behind. Discount rates, 
if inverted would therefore move in the same direction as re- 
serves, loans and deposits. In Chart 6, however, the real 
movement of commercial paper rates is plotted along with the 
industrial composite. It will be seen that the money rates lag 
somewhat behind. From this it is obvious that reserves, loans 
and deposits would also correlate with the industrial composite 
with only a slight lag. In this case, however, the correlation 
would be inverse. As a matter of fact all the banking series 
have commonly been thought of as lagging slightly behind the 
business barometer. In the opinion of the writer this rele- 
gates them altogether too much to the position of mere lagging 
reflexes of business conditions. For reasons that will be set 
forth fully in Chapter IV the writer believes that the causal 
relation works on the whole the other way. If it is thought 
that reserves, loans and deposits rise as a result of depression 
and tall as a result of prosperity, then naturally the fluctua- 
tions of these series will be thought of as lagging behind, and 
therefore moving inversely with the other series in the busi- 
ness cycle. If on the other hand the movements of reserves, 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 37 



loans and deposits are thought to be causal factors resulting 
in similar movements in stock and commodity prices, produc- 
tion and profits, then the fluctuations of these series will nat- 
urally be thought of as moving in the same direction but pre- 
ceding the other series in the business cycle. Chart 5 suggests 
the latter view. Following out this line of reasoning it is clear 



3.0a 



CHART 6 



2.50 
2.00 



INDUSTRIAL COMPOSITE 
COMMERCIAL PAPER RATES 




3.004 



1902 1903 1904 1905 1906 1907 1908 



that discount rates fluctuating in response to the movements 
of reserves, loans and deposits, constitute a causal factor af- 
fecting business conditions. But if one has his eye on the lag 
which appears in Chart 6, one is apt to conclude that discount 
rates are merely a result of business conditions. In inter- 
preting Chart 6 it is therefore necessary to be on one's guard. 



38 UNIVERSITY OF WISCONSIN STUDIES 

\\ hen discount rates tor example begin to drop, one should 
consider it not so much a belated index of depression as a 
harbinger of better things to come. The writer does not deny, 
however, that the eausal relation works both ways. 

The exact lag of the various series shown in these charts 
can be established more definitely by means of the Pearsonian 
coefficient. The coefficients of correlation between the Bank- 
ing Composite and the Investment Composite are as follows: 

Banking Composite precedes 11 months, +.5S1 

12 " +.593 

13 '* +.561 

It therefore appears that the Investment Composite lags 12 
months behind the Ranking Composite. It must be remem- 
bered however that the lag is very much more marked at the 
crest of the wave than it is at the trough of the wave. 

The coefficients of correlation between the Investment Com- 
posite and the Industrial Composite are as follows: 

Investment Composite precedes 7 months, +.756 

8 " +.770 

9 " +.735 

The Industrial Composite then lags 8 months behind. Here 
again the lag is greater at the crest of the wave. 

The coefficients of correlation between the Industrial Com- 
posite and the Commercial Taper Rates are as follows: 

Industrial Composite precedes 4 months, +.681 

" 5 " +.688 

6 " +.676 

The Commercial Paper Rates series therefore lags 5 months 
behind the Industrial Composite. 

To summarize the foregoing, it appears that the Hanking 
Group moves first chronologically ; lagging behind it is the In- 
vestment Croup: and lagging behind the Investment Group in 
turn is the Industrial Group. Of the twenty-three series ex- 
amined the following belong in each group. The diit'erent 
series for each group are substantially synchronous. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 39 

I. Banking Group. 

1. Reserves in New York clearing house banks. 

2. Deposits in New York clearing house banks. 

3. Loans in New York clearing house banks. 

4. Call loan rates. 

II. Investment Group. 

1. Prices of ten Investment stocks. 

2. Prices of forty common transportation stocks. 

3. Shares traded on the New York Stock Exchange. 

4. Liabilities of business failures. 

III. Industrial Group. 

1. Wholesale prices. 

2. Production of pig iron. 

3. Railroad gross earnings. 

4. Imports. 

5. Immigration. 

To the Banking Group belongs also commercial paper rates 
but it was omitted from the above classification since it lags 
3 months behind the rest. 

To the Investment Group belong in a general way ten bonds, 
Building permits, bank clearings and railroad net earnings. But 
they were omitted above because the ten bonds precede 2 
months, bank clearings and building permits lag behind 3 
months, while railroad net earnings lag 6 months behind. 

To the Industrial Group belong in a general way unemploy- 
ment and exports. They were excluded from the composite 
because unemployment seems to precede the group by 3 months, 
while exports lag 4 months behind. 

D. Comparison With Other Groupings 

The results of this study differ in certain particulars from 
the groupings used by the Brookmire and Babson services, and 
from the grouping made by Professor W. M. Persons in his 
study of annual data. 6 This may best be shown by outlining 
the groupings of each of the two services, and of Professor 
Persons. Their groupings are as follows : 

•W. M. Persons, "Construction of a Business Barometer," American 
Economic Review, VI, 739-769. 



40 UNIVERSITY OF WISCONSIN STUDIES 

1. BROOKMIRE'S GROUPINGS 

I. Banking Group. 

1. Reserves. 

2. Deposits. 

3. Percentage of loans to deposits. 

4. Percentage of reserves to loans. 

5. Rate of commercial paper. 

II. Investment Group. 

1. Thirty-two leading stocks. 

III. Business Group. 

1. Bank clearings. 

2. Railroad earnings. 

3. Pig iron production. 

4. Pig iron prices. 

5. Commodity prices. 

6. Imports. 

7. Building. 

8. Immigration. 

The writer would offer no objection to the first two group- 
ings, but the results of the investigations given in this chapter 
would indicate that bank clearings and building should not be 
included in the business group. 

2. BABSON'S GROUPINGS 

I. Monetary Group. 

1. Domestic money rates. 

2. Foreign money rates. 

3. Foreign trade. 

4. Commodity prices. 

II. Investment Group. 

1. Leading crops. 

2. Railroad earnings. 

3. Stock prices. 

4. Political factors. 

III. Mercantile Group. 

1. Immigration. 

2. New building. 

3. Commercial failures. 

4. Bank clearings. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 41 

The present study indicates that these groupings are badly 
mixed up. Foreign trade and commodity prices belong more 
properly with immigration. The present study would also in- 
dicate that commercial failures is entirely in the wrong place 
when grouped with immigration. Bank clearings and business 
failures may more properly be placed with the Investment 
Group. 

3. PERSONS' GROUPINGS 

I. Forecaster. 

1. Shares traded. 

2. Prices of stock. 

3. Bank clearings. 

4. New railroad mileage. 

5. Percentage of business failures. 

II. Barometer. 

1. Gross receipts of railroads. 

2. Net earnings of railroads. 

3. Coal produced. 

4. Exports. 

5. Imports. 

6. Production of pig iron. 

7. Price of pig iron. 

8. Immigration. 

9. Relative wholesale prices. 

III. Classed as Synchronous with Barometer. 

1. Ratio of loans to resources. 

2. Ratio of cash to deposits. 

3. Surplus Reserves of New York Associated Banks. 

The study of monthly data shows that exports lag 5 months 
behind imports ; that railroad net earnings precede railroad 
gross earnings and the rest of the industrial group by 4 months. 
As has already been pointed out the group classed as syn- 
chronous with the barometer by Professor Persons, the writer 
believes might more properly be classed as a separate group. 5 " 



58 Unfortunately, this was written before Professor Persons' able studies 
of monthly data were published in the Review of Economic Statistics. 
He there does classify a separate banking group, but the position he gives 
it in the business cycle differs from mine. 



42 



UNIVERSITY OF WISCONSIN STUDIES 



& 

q 
C 

s 

w 

a 

> 

O 

M 
M 



Pm b 

o s 

Q w 
£ W 

W *" 

eu o 

w 
pa 

S 

w 

Q 



< 



33 



•S-a 

«Ph 



£rc 



o 

03 m S 

3'ccr=j 

? 3 oj 



co.S 



oq T3 
C HI 



3 

O 



o ° 

© 



>-7 



OOiCHtC^NfflNO'J'tO MO>iO©HCN'H'J l N'-i' 



00 00 CM Tf y> lO CM CO CM CO <-H CO CD CO •-< t- ^H 00 lO 00 ■* O CO 00 

O5iOlOt»t>-i-iCO00r^lO'^'— I MO>NiOOiOOHiOO*3i 
CO © t> CO t^ 00 00 CD CO CO CO t"» NNONOO(5NNK5!DtO© 



CO t}< OS »-i O OS t- 00 CO t- OS O oO^i-ihOOhnNOOOS^ 



31 



OSN^iC^^iOlOCCOHN l£> 00 t~» CM CO CO CM •* 00 •** CO OS 

(OWOOlOCJiflOOOlMOOH OcOCOt--CO'^ i '-iOO'«**iOrHCO 
00 00 00 CT> OS OC OS CO OS OS 00 00 C5 00 00 00 OC OS OS t^ t~- b- t^ t~- 



CM CO OS CM i-i <-< >0 lO O i— I CO «-H CM *C i-h •«*! »C OS CO 00 00 OS OS O 

CO 00 t-H i-H Tt< 00 •* 00 O CO lO IC OS rj< 00 iO t> CO -^ 00 i-i t*- CO CM 
t>- OC CO -^ 00 CO <-> r- CM 00 00 t> NNNfflt-COONO<OiON 



SOI»HOONOOONO)n iCNOMOHON^NOtO 



COOO CCCOOOflsOlOlWOO) 



t~» O C7i 00 t^ CO t^- 00 O 00 t^ »o O CM if? OS CO r- OS 00 Tt< »o 00 CO 

8io ^ c<> •«*> r- r^ o c »o as co ooioojooownic^^qo 
OOhhhhNNhCO O^OOiaiCOXt^NNNN 



t^OOCMOCOCCCMCMOSOSOOiO CO © CO CM lO CM i— iiOOOh^ 

o> © co io oo oc © o as co cm cm co ■**< *-* oc t~ >o cm o cjs oc as o 
asooooo—i ^ oofc o oooasasasasasocooooas 



•9^ 

a a 



ill 



^> a 
g: g c 

o & « c 



S-9 03 



k-i »** C3 f^ C3 »-• •— ' ^- k— ■ Ts O w 

>-jfi,2-<<5(-5i-,-<a20ZW 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 43 



t^r-~iccM>-it^!^cooooCTt<© 



toio^ONOiOHiNaoo oot~>-tco© 

Tf r- e?3 © r^ r^ © © oo in © -* 1 woooon 
ocNCcoaoionooo-' nmhoo 



00 © ■* © 00 C ■**« O CO t- h- © OOiOOXNONiO^H^ ^ <N 00 00 00 
NlON*N«0000O«O0> CN«"0(N-'MMON- lO CO C<« •* (N 



occNOfflOKN^ONn •* co ■«*< oo »-h <-< co ^h oo co © © ©©oo©© 



NOOiOm^-iiHOTC'J'CScp 

r^r^t^-r^r^coocr>-oc©©© 



©CN ©©t^OOOO^OO©© CN©00COiO 



t»©<Mr"-©<NCOmcOCN©CO t»(N©©Tt<<N©©©©t^iO CNCNt^iOrf 



© CO iO ■«*< f^ CO CO 00 »0 <N <N 00 •-< 00 i-h CO © •<* CO lO © © CO »o <N^©t}<00 
000000©©©-^ — ' COCOCOCO CO CO ^"* CO tX ^ ^* *# tJ< tJ< CO CN CJ — < --< © 

©©©©©©©©©©©© <^©©©©o©©o©©© ©©©O© 



00COT}«(N-^<^00t^cN<N<-i00 ©CO©>-i^0000000000-*-* ^ © t^ CO ■>* 



lOiO-HiO<N<M00©CN©C0CO COt^'-iCNiO<-'iO©0CTt<<N»O ^N'OM'* 

©00©©©'— M N Tfi 2 M CD ©©iOiO^HC0r}<t^l>©©00 0000t^©»O 

©0000©©©©©©©©© C5HHHHHHt1MNNH t-H i-H 1-1 i-( ,-H 



>>2 



u 

-I 3 » 






G 




3 J — 

§2- 



s 



44 



UNIVERSITY OF WISCONSIN STUDIES 






H 






T3 a 

ff;ft, 



* £ 






ffl.S 



odT? 

a.- o 

I* 

02H 



a 

O 



a 
o 

a an 

Ox 
o 



00 

2§ 

~a 



-* CO CO C2 00 rji f- OMOi 



i oo h- •-* ooh- 



<-i iO OS oo r- oo o 



OMfNiO^NHOOON 



co — ' 0C t- CO CO <-h 00 00 t^ "* <N 00 t^ ^* <N O lO ** 



<-< r-H r-< i-h — < 00 <N CO 



o <n -« o cc <-> f-t 
coacNomoo 

MOMNrHMrt 



ooiNt^^Hai05^coo«*<Tt<o 






NN^^OnO iO(NOOO>OlHO)K5CMN 



SS8: 



»-• — © CO t~ •*!< © CO ■* h- rt< CO O O CD CD t» 00 O 



<N CD .-h <M CO tN © 00 t-H 00 rf O © CO t- CO CD CO CN 



oo eo t^> oo © oo <-< 



4, slg,S O £ * 



Htm 



£.2 s a 

«-5 cj g 



'e-= a^ o S 



3?| »^ § 3 3 £££o 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 45 



HMH^ONOOOOOTfOOO 



>oooo o 

' O O O O ~ 

'Oooo 5 



(COOCCN'fOinHON 



C4 0Tfico-»f-^iot^r^C3t^--o 



oo aoooco< 



>OQOOO< 

'OOOOO' 



OOOtNOOCOOOOOiOC"<t < iO 

CONHN'-l'-li-tNHiHi-4H 



OOOOOOOQQOOO 

8 OOOOOOOOOOO 
ooooooooooo 



CINNCSOliOaOOHNO 



CO>HOO-.OOOffi©(»iHOM 



NO>NONNO>OiO00(NH 



:888S88S8888 

'OOOOOOOOOOO 






<NO<-hOOOOOO<Nt-h<N 



ONCONOlO^fflHOOO 



OOOOOOOOOOOO 

S OOOOOOOOOOO 
OOOOOOOOOOO 



loOHNOmoOHOOH 

COtDClOlOTOMcOCOOOir. 



(OCOCOMOH^TfO'-t 



I r-t H .-H rH 

'OOOOOO 



NiooH©mt>.iHij<oo)H 



OCD>-HOlDiOCT>-«ti^cC^J<C» 
MINCl(NHrt>-if)(N(NINC l t 
<M<McNCN<NC<><N<NCMCNCN<N 



(CNtoOHaj^ooioioico c^cocco^tjiiocoococo© 



»-H05C0t^kOTtiOCT>O00t^00 



IJf* 



*■> s oi 



-9x> 

a a 



fr& 



° £ 



* 3 7 _J 

a-9 « * * a-^ 6 * 



<U din. 



■3£s.§i^£o;Sa s&s££^«ii<§iia 



pq 



^ 3 



?:s 



o 



t, c a 

y y ' 

> 3 H 

to*" > 

Ctfri <« 
'O y 3 

rt w a> 



y 



<u 



.S£ £ 

<U O o 



■Df-3 
y d *J 
W <1> « 

53.28 

£ a) 



y O y 



IfloU 



X CO 



y k. 

Is: 

CO y.2 

y >3 ca 
.2 rt > 
m o y 
p y is 

«•% 



igft£ 

° rt * 



tC.S 



46 



UNIVERSITY OF WISCONSIN STUDIES 



P 

o 
tf 
o 

< 

t— I 

H 
cc 
P 
Q 

«< 
U 

W 

S 

<: 

w 

w 



ft 

C 

S 
H 

§ 
P 

M 

N 
P 
g 

A 

w 

3 






i CQ 

-2P 
a 5 



21 



w 



PCM 



T3 tn 

O a> 



lONHNO^^MOOOiOCO NiOOiHCON<DN(CN!0»0 



iOr-t^O!OH^iWNiO»OC -«**t^T}<lN00-«*<>-tO<N^HTt<<O 



NOM(Dt!<OOON«NH rHCOWOiOOOHNlOOCWO) 



CO <N l^> t- <N t- CO CD (N CT> CO CO 00 00 CO 05 00 t- W5 O CO <N (N <N 



OOiHNcOO)0>00©M<0'* OiCOXOONW^COOOi-iO 



iCOHiONfflO"*l>.iOiOO illi-nOOlOOOMOOOCONOO 



t-0>t^i0O»0(NC0i0Tj<i-iC0 b-t-<NiO00t^.00t»»ncOTj<cO 



s *> a pi 
8 

o 



2 £1^5 



gfid G jj 
P~2 a £ § 






HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 47 



OOMOhNOhoOXOMO OCC'noOiOMHWOiHtO'* 



CO^ffilNOONroNINiflm lOHOOO>iO©»ONOiOHCO 



HQOioOtOCOOcCOOCO 



OHHOOlOOlOlOOCOtOtO 



00i0iOiO^*iO©HN©O 00 00 b- CD t~- CO 0> 00 CT> t- CO cn 



CN CN >-H> 00 00 © © t-- CO "3 CO 00 <N t^ Oi 00 ^H © CD t^ CO CO © 



i-H CO «-h "* CO CO <N •* f-l © CO a> CO 00 lO 00 CO <-• tJI c<> CO CO »o 00 

ad^dNoocooodoQ TticpfNiOHaNriN^HN 

"t 00 00 O 00 I>- CO t— 00 CO 00 © HOHrtHOOHHrINN 



W00COCOCOCDiO©O5iOcNO» OOt^t^OOi-iOOCNOOCNCOCO 



hfr : : : : : '| ^ 



• • S . « 55 

:ilJIM 

gl^ &* §3 g »£ o « g •§« a,£ §3 a &o o aj 



P.^-o £ 55 



J .a • 

2 Hr3 



s 



48 



UNIVERSITY OF WISCONSIN STUDIES 



Sr^t~COCClN00©©COi->© i-<^©COt^TiiiOt^COOC-HiO 
© © 1-1 1-1 h O >-i © *-< .-i © <N <N •— 1M i— <M <N i-* © © <N ^-t 



HNONOiOOWHOlNO OC©C^>-< © © <N 00 lO lO © © 



a- 9 
^a 



© t- iO © © CO «-i CO ©t}< CO © t- 0(DM« ©COCO © lO © iC 






ONHT)<00(0MiO0)OO>N OWNOi- I © -<tf IM © t^ © © 
lOtDNMffiOrtON^O'f •* Tf Tf t~- C i© 00 -* © © ^ © 



O 

& 

a 



«•<*< 00 00 i-i CO © © ON © <N © VO lO © --I © lO CO © CO 00 "5 CO 

O* i-i © ><N "K i-i CO C >O0 00 ^- CO «h«SN^«NNhNh 

HiHrtHHH^riOHINP; COCO<NCOCO(NCOCOi— I l-« I-H O* 



PQ 



-Si 

OCLi 



00CO ^•f ^(N ©i-h t^©<N t- t}< 00 CO CO i-H © © t}< (N CO CO (N 



i-S 

a^ 

o 
O 



t-5OiOiC©<N00©©O«^H iti ©00CO©©lOCOC0lO©O© 

i-< ©Q~ OJ COfNCOCO-* ©t^ 00© --I ©©i-i <N© O0t^©<N 
©©©©©©©©©©O© ©©i-h © O H i-c-< ©©©© 



£% 






gjllll^illli 



fr£ 



ellll 






HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 49 



O -*J< O »C Oi fH CO "3 CO CO CNIN 

•-H^.iO-^OO'^'Q^^cpeOt^-iO 

MNOOO)OOOOC5oiO 

,_,_,_< _l HHHi- 1 l-H «-H OTJCMCMt^aikOCOl-IOQ 






IC CO CO OJ I 



i CO CO CO t^ 



O^'^NH^OOO'tNMCO 



Pnoujiox^tcooHHin 



t^coco-^t^ot-^cococococo 

COrHcMi-Hi-ilMCMCTiOOr^aiCN 



lOfOOOMWN'-IOcOiOH 

§8BSS§8c52§SS 



COTt<(MlOCOCO-*iOCDiO-*»0 

rHI»MO)T(l05HOHNN5D 

(NO>>OCC-*INOOONCO(N«) 



t^cocicxnooiOi-iooo-^cD 

OS O CO <— If I <— I CO CO < 

00 0>00 0>0>OC»Oi 



888: 

OOOi 



t>- »C "3 CM O CO i 



oooooooooooo 

>-• OS t* l> CO Tt< i-h O O iO CO t~- oooooooooooo 

oooooooooooo 

l^fHi-«COcOCO»0>-trJ*t^.iCQO - - - - - - - - - - - - 

to r^» t- co co co t> oo oo oo o o o co o i-i oo ■* cn o o i-h cd <— i 

H CO CT> CM <N lO ■* <N lO 00 Cft "O O 
iO-*t^t~l>cOcOcOcOt--COCD 



NNOCOOOOHOCOSOIH NM00iOHCC)lCONNr-iai 

000003CDCOCD'OffiCNO'*h- 

i-H C7> t» 00 t- lO b- 00 b- t~ t- O HHrtHHOOOHNNCN 



OO^O>O>O)OO01C>O^O^O) 



000000000000000000000000 



^ 



•h »_, 






&& 



(=1-9 c3 



l||8 



Tfa<!i<!^iH;Ha-<!a}OZO 



« 



50 



UNIVERSITY OF WISCONSIN STUDIES 



TABLE C— INDEX NUMBERS OF SERIES IN THE AMERICAN 
BANKING GROUP 







Cash held 


Deposits 


Loans of 


Call Loan 


Commer- 






by N. Y. 


of N. Y. 


N. Y. 


Rates ( 7 ) 


cial Paper 






Banks 


Banks 


Banks 




Rates 




Jan 


93.2 


92.9 


86.9 


108.1 


97.1 




Feb 


95.4 


94.5 


88.3 


100.9 


83.5 




March. . 


92.8 


94.6 


89.4 


101.0 


89.9 




April. . . 


87.0 


90.5 


86.7 


143.4 


97.2 




May 


85.6 


88.0 


83.9 


175 


100.3 


1902 


June 


86.1 


87.7 


84.3 


121.3 


100.8 




July.... 


84.6 


86.7 


85.5 


149.7 


98.9 




Aug 


82 1 


87.4 


85.6 


168.8 


98.0 




Sept 


78.1 


82.6 


83 3 


437.5 


106.6 




Oct 


79.8 


81.6 


81.9 


228.6 


105.6 




Nov. . . . 


89.6 


83.3 


81.8 


113.9 


102.3 




Dec. . . . 


78.3 


84.2 


84.1 


132.2 


102.1 




Jan 


91.3 


89.2 


886 


136.2 


97.1 




Feb 


88.9 


89.7 


90.4 


122.1 


98.3 




March . . 


84.0 


87.2 


89.2 


154.0 


113.5 




April. . . 


80.7 


83.9 


87.1 


117.8 


106.9 




May 


81.6 


84.8 


87.8 


76.7 


110.9 


1903 


June 


80.4 


82.9 


86.4 


130.8 


116.7 




July.... 


79.8 


82.1 


85.7 


106.3 


119.8 




Aug 


82.5 


82.0 


S5.0 


90.6 


122.4 




Sept 


83.8 


83.7 


86.1 


94.0 


115.5 




Oct, 


85.3 


83.4 


85.6 


80.5 


105.6 




Nov. . . . 


81.8 


80.5 


83.3 


121.0 


106.7 




Dec. 


86.7 


82.1 


84.5 


106.9 


106.4 




Jan 


96.4 


94.2 


94.4 


55.5 


92.5 




Feb 


100.3 


96.6 


95.8 


76.7 


983 




March. . 


105.2 


99.4 


97.0 


44 9 


92.1 




April. . . 


107.5 


104.0 


100.3 


3S.8 


82.6 




May — 


103.7 


103.5 


101 1 


48.8 


87.1 


1904 


June .... 


109.1 


103.6 


99.7 


48.3 


84.8 




July.... 


114.6 


107 6 


102 . 1 


43.8 


78.1 




Aug 


118.6 


108.4 


101.9 


40.2 


78.3 




Sept 


117.5 


111.9 


105.8 


62.0 


80.0 




Oct 


112.8 


112.4 


107.3 


60. S 


83.6 




Nov. . . . 


112.7 


110.2 


104.9 


65.3 


74.6 




Dec 


112.4 


107.1 


97.3 


60.8 


74.4 






114.8 


113.7 


108.8 


53.3 


76.3 




Feb 


110.7 


112.5 


108.9 


92 9 


78.6 




March. . 


109.1 


112.4 


109.2 


82.1 


80.4 




April. . . 


105.1 


107.9 


106.0 


91.3 


82.6 




May — 


104.7 


107.0 


105.3 


76.1 


84.4 


1905 


June 


101.3 


104.9 


104.5 


106.8 


84.8 




July.... 


104.2 


107.1 


105.1 


984 


85.9 




Aug 


101.7 


106.7 


106.3 


91.5 


85.7 




Sept 


97.7 


101.9 


102.7 


144 2 


84.4 




Oct 


95.6 


97.0 


97.8 


159.1 


880 




Nov. . . . 


96.5 


96.2 


96.7 


179.6 


96.1 




Dec 


97.2 


95.6 


96.6 


320.8 


102.1 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 51 
TABLE C— Continued 







Cash held 


Deposits 


Loans of 


Call Loan 


Commer- 






by N. Y. 


of N. Y. 


N. Y. 


Rates ( 7 ) 


cial Paper 






Banks 


Banks 


Banks 




Rates 






98.8 


100.7 


102.0 


202.5 


97.1 




Feb 


96.1 


99.2 


101.5 


196.5 


108.1 




March. . 


94.3 


96.6 


99.7 


125.3 


101.7 




April. . . 


91.7 


94.7 


98.8 


267.1 


106.9 




May 


92.2 


95.1 


98.9 


130.5 


110.9 


1906 


June 


93.4 


97.0 


100.5 


138.9 


111.3 




July 


92.6 


95.1 


98.6 


126.2 


114.5 




Aug 


90.4 


95.4 


99.6 


98.2 


117.5 




Sept 


89.9 


94.1 


98.0 


380.0 


115.5 




Oct 


95.7 


97.6 


100.3 


158.2 


110.0 




Nov. . . . 


94.5 


94.5 


97.8 


175.0 


106.7 




Dec 


95.4 


94.7 


99.1 


272.2 


106.4 






100.0 


102.3 


106.3 


145.7 


115.5 




Feb 


96.4 


99.9 


105.1 


186.0 


118.0 




March. . 


94.6 


97.1 


102.9 


163.9 


113.5 




April. . . 


101.3 


102.4 


106.3 


66.0 


116.7 




May 


100.2 


103.0 


107.5 


72.4 


116.1 


1907 


June .... 


98.2 


103.0 


108.0 


133.8 


116.7 




July 


93.3 


98.6 


104.6 


197.3 


125.0 




Aug 


90.8 


95.9 


102.2 


136.6 


122.4 




Sept 


93.1 


96.4 


102.1 


162.0 


120.0 




Oct 


92.9 


96.1 


102.0 


628.5 


127.7 




Nov. . . . 


82.0 


101.5 


110.9 


286.0 


136.6 




Dec 


89.9 


102.8 


111.9 


284.0 


136.2 






105.5 


107.2 


112.8 


112.5 


124.8 




Feb 


113.1 


107.8 


109.9 


76.7 


115.5 




March. . 


120.0 


112.7 


112.7 


47.5 


108.8 




April. . . 


126.6 


116.7 


114.6 


48.3 


106.9 




May 


131 4 


118.6 


114.7 


52.2 


89.7 


1908 


June 


132.0 


120.8 


116.4 


65.0 


84.8 




July 


130.5 


122.1 


118.2 


52.0 


78.1 




Aug 


134.0 


124.0 


119.2 


47.3 


75.7 




Sept 


140.0 


129.4 


122.5 


54.7 


77.7 




Oct 


137.6 


131.7 


125.0 


43.2 


79.2 




Nov. . . . 


143.0 


133.0 


124.8 


27.5 


76.9 




Dec 


140.1 

(000) 


133.4 
(000.000) 


126.2 
(000.000) 


56.3 


72.3 






268.200. 


1.001, 


999. 


4.23 


5.41 




Feb 


281.900. 


1,062, 


1,040. 


2.36 


5.08 




March. . 


274,400. 


1,046, 


1,032. 


3.90 


5.28 




April. . . 


281,700, 


1,057, 


1.037. 


3.56 


5.14 




May 


287,700. 


1,078. 


1,050, 


3.18 


4.73 


Base 


June .... 


289,800, 


1,079. 


1,052. 


2.34 


4.71 




July 


296,300, 


1,094, 


1 .063 , 


2.35 


4.80 




Aug 


302,900, 


1.113, 


1.076. 


2.24 


5.10 




Sept 


289,800, 


1 ,089 , 


1 .072 . 


2.47 


5.62 




Oct 


281.400. 


1,070. 


1 ,063 . 


3.34 


5.67 




Nov. . . . 


267,300. 


1.059. 


1.068. 


4.28 


5.85 




Dec. 


257,300, 


1.035. 


1,045. 


5 14 


5.87 



1 In the case of Call Loan Rates a three-year average was used for the 
base In computing the index numbers. The results of course have practi- 
cally no significance so far as the elimination of seasonal fluctuations is 
concerned. The deviations from the actual average for the seven year 
period were used in computing the correlation coefficient. 



52 



UNIVERSITY OF WISCONSIN STUDIES 



TABLE D— RELATIVES OF SERIES APPEARING IN 
CHARTS 1, 2, 3 AND 6 





Invest- 


Whole- 


Indus- 


Com. 


Ten 


ment 


sale 


trial 


Paper 


stocks 


Com- 
posite 


Prices 


Com- 
posite 


Rate 


.00 




10 


—1.30 


—1.10 


— .19 


+ 08 


+ 


10 


—1.30 


—1.24 


—1.06 


+ .23 


+ 


02 


—1.09 


—1.07 


— .63 


+ .46 


+ 


75 


—1.09 


—1.01 


— .19 


+ .69 


+ 


40 


— .65 


— .82 


.00 


+ .69 


+ 


24 


— .65 


— .91 


+ .06 


+ .77 


+ 


72 


— .65 


— .76 


— .06 


+ -77 


+ 


49 


— .65 


— .88 


— .12 


+ .77 


+ 


69 


— .65 


— .75 


+ .44 


+ .54 


+ 


38 


— .65 


— .81 


+ .38 


+ .23 


+ 


23 


— .43 


— .78 


+ .12 


+ .23 


+ 


05 


— .43 


— .57 


+ .12 


+ .31 


+ 


16 


— .22 


— .46 


— .19 


4- .31 


+ 


IS 


- — .22 


— .45 


— .12 


+ .08 


+ 


04 


— .22 


— .37 


+ .88 


— .15 


— 


27 


— .22 


— 22 


+ .44 


— .23 


— 


IS 


— .43 


— .33 


+ .69 


— .38 


+ 


09 


— .43 


— .31 


+ 1.06 


— .62 


— 


51 


— .43 


— .33 


+ 1.25 


— .77 


— 


M 


— .87 


— .53 


+ 1.37 


— .85 


— 


75 


—1.09 


— .60 


+ 1.00 


— .92 


— 


94 


— .87 


— .73 


+ .38 


— .85 


— 


82 


—1.09 


—1.05 


+ .44 


— .77 


— 


75 


—1.09 


—1.28 


+ .38 


— .77 


_ 


79 


— .65 


—1.00 


— .44 


— .92 


— 


89 


— .22 


— .55 


— .12 


— .85 


— 


S7 


— .22 


— .57 


— .50 


— .77 


— 


95 


— .43 


— .57 


—1.06 


— .77 


— 


96 


— .43 


— .61 


— .81 


— .69 


— 


83 


— .65 


— .72 


— .94 


— .54 


— 


43 


—1.30 


—1.09 


—1.37 


— .62 


— 


•^ 


— .87 


— .73 


—1.37 


— .46 


— 


27 


— .87 


— .62 


—1.25 


.00 


+ 


57 


— .87 


— .61 


—1.00 


+ .23 


+ 


45 


— .65 


— .37 


—1.56 


+ .46 


+ 


46 


— .65 


— .24 


—1.62 


+ .46 


+ 


33 


— .22 


+ .32 


—1.50 


+ .85 


+ 


85 


— .22 


+ .29 


—1.31 


+ 1.15 


+ 


98 


— .22 


4- .37 


—1.25 


+ 1.15 


+ 


.98 


— .43 


+ .18 


—1.06 


+ .92 


+ 


63 


— .43 


+ .06 


—1.00 


+ 1.00 


+ 


52 


— .43 


+ .12 


— .94 



Cash 
Re- 
serves 



Bank- 
ing 
Com- 
posite 



1902 

January 

February 

March 

April 

May 

June 

July 

August 

September 

October 

November 
December 

1903 

January 

February 

March 

April 

May 

June 

July 

August 

September. . . . 

October 

November 
December. . . . 

1904 

January 

February 

March 

April 

May 

June 

July 

August 

September. . . . 

October 

November 
December. . . . 

1905 

January 

February 

March 

April 

May 

June 



— 1 

— 1 
— 1 

— 1 



— 1 
— 1 
— 1 
— 1 
— 1 
— 1 
— 1 

— 1 



— .25 
.00 
+ .31 
+ .44 
+ .25 
+ .57 
+ .94 
+ 1 20 
+ 1.13 
+ .82 
+ .82 
+ .75 



+ .94 

+ .69 

+ .57 

+ .31 

+ .31 

+ .06 



— 1 



72 

62 
61 
94 
09 



—1.09 
—1.11 
—1.14 
—1.42 
—1.44 
—1.20 
—1.36 



— .81 

— .79 



.01 

.21 

13 



— 1. 

— 1. 

— 1. 

—1.29 

—1.32 

—1.30 

—1.18 

—1.18 

—1.42 

—1.23 



— .42 

— .20 

— .01 

+ .25 

+ .22 

+ .29 

+ .58 

+ .67 

+ .87 

+ .80 

+ .69 

+ .35 



+ .95 

+ .84 

+ .78 

+ .49 

+ .44 

+ .30 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 53 



TABLE D— Continued 



Ten 

Btocks 



Invest- 
ment 
Com- 
posite 



Whole- 
sale 
Prices 



Indus- 
trial 
Com- 
posite 



Com. 
Paper 
Rate 



Cash 
Re- 
serves 



Bank- 
ing 
Com- 
posite 



1905 

July 

August 

September 
October . . . 
November . 
December . 

1906 
January . . . 
February . . 
March 

April 

May 

June 

July 

August. . . 
September 
October . . . 
November . 
December . 

1907 
January . . . 
February . . 
March 

April 

May 

June 

July 

August 

September 
October . . . 
November 
December. 

1908 
January . . . 
February . 

March 

April 

May 

June 

July 

August 

September 
October . . . 
November 
December . 



+ 1.15 
+ 1.38 
+ 1.38 
+ 1.54 
+ 1.54 
+ 1.46 



+ 1.38 
+ 1.46 
+ 1.38 
+ 1.23 
+ 1.15 
+ 1.38 
+ 1.08 
+ 1.31 
+ 1.39 
+ 1.46 
+ 1.38 
+ .85 



+ 
+ 



31 
08 

.46 
- .54 

— .69 

— .92 

— .77 
—1.23 
— 1.31 
— 1.62 
— 2.08 
—1.92 



1.69 

1.85 

1.54 

1.46 

1.15 

1.08 

1.00 

92 

00 

92 

46 

31 



+ .57 
+ .82 
+ .61 
+ .79 
+ 1.00 
+ 1.11 



+ 1.40 
+ 1.11 
+ .75 
+ .92 
+ .95 
+ 1.31 
+ .75 
+ 1.19 
+ 1.20 
+ .92 
+ .72 
+ .56 



— 1 



+ .39 
+ .33 
+ .45 

— .09 

— .17 

— .58 

— .33 

— .59 

— .85 
—2.70 
—1.61 
—1.82 



—1.42 
—1.44 
—1.02 
—1.15 

— .36 

— .64 

— .54 

— .61 

— .52 

— .49 
+ .17 
+ .16 



— .43 
.00 

+ .43 
.00 
.00 
.00 



+ .43 
+ .22 
+ .22 
+ .43 
+ .43 
+ .65 
+ .65 
+ .65 
+ .87 
+ .87 
+ 1.30 
+ 1.74 



+ 1.96 
+2.17 
+2.39 
+2.17 
+2.17 
+2.61 
+2.61 
+2.17 
+ 1.96 
+ 1.74 
+ 1.30 
+ .65 



+ .22 

— .22 

— .65 

— .22 

— .43 

— .87 

— .65 

— .43 

— .65 

— .43 

— .43 

— .22 



— .03 

+ .10 

+ .35 

+ .28 

+ .16 

+ .33 



+ .94 
+ .91 
+ .81 
+ .68 
+ .73 
+ .77 
+ .85 
+ .75 
+ .72 
+ .92 
+ 1.16 
+ 1.61 



+ 1.78 
+ 1.73 
+ 1.73 
+ 1.72 
+ 1.94 
+ 1.92 
+2.04 
+ 1.85 
+ 1.28 
+ 1.30 
+ 1.10 
+ .01 



— .43 

— .63 

— .86 

— .74 

— .91 

— .80 

— .76 

— .54 

— .38 

— .35 

— .22 
+ -17 



— .88 
—1.00 

— .75 

— .25 
+ -12 



— .19 

+ .50 

+ .12 

+ .44 

+ .69 

+ .69 

+ .88 
+ 1.06 

+ .94 

+ .63 

+ .44 

+ .38 



+ 1.00 
+ 1.12 
+ . 
+ 1.06 
+ 1.00 
+ 1.06 
+ 1.56 
+ 1.37 
+ 1.25 
+ 1.75 
+2.31 
+2.25 



+ 1.56 
+ 1.00 
+ .56 
+ .44 
— .63 
- .94 
37 
50 
37 
31 
44 
,75 



— 1 
— 1 
— 1 
— 1 
— 1 
— 1 



+ .25 

+ .13 

— .13 

— .25 

— .25 

— .18 



06 

.38 
.50 
.50 

44 
41 
.63 
.63 
. 'if. 
.38 
.31 



.00 

— .25 

— .31 
+ .06 

.00 

— .13 

— .44 

— .57 

— .44 

— .44 
—1.13 

— .63 



+ 
+ 
+ 1 
+ 1 
+ 1 
+2 
+ 1 
+2 
+2 
+2 
+2 
+2 



+ .42 

+ .41 

+ .10 

— .22 

— .28 

— .26 



+ .07 

— .05 

— .21 

— .33 

— .33 

— .26 

— .31 

— .34 

— .43 

— .14 

— .35 

— .27 



+ .23 

+ .07 

— .09 
+ .25 
+ .32 
+ .28 

— .02 

— .24 

— .19 

— .19 
+ .01 
+ .23 



+ .70 
+ .78 
+ 1.15 
+ 1.47 
+ 1.60 
+ 1.71 
+ 1.77 
+ 1.92 
+2.30 
+2.37 
+2.53 
+2.49 



CHAPTER III 

COMPARISON OF MONTHLY DATA FOR GREAT 
BRITAIN, GERMANY, AND THE UNITED STATES 

In this chapter an analysis will be made of various statis- 
tical series for Great Britain and Germany, and a comparison 
will be made between American, British, and German data. 
This chapter has two purposes in mind : first, to ascertain the 
chronological relation of the various economic series of Great 
Britain and Germany as was done for the United States ; and 
second, to determine the chronological relation of the different 
groups in the three countries. We shall therefore first at- 
tempt to classify the groupings within the foreign countries, 
and then determine the relation of the group of one country 
to similar groups in the other two countries. 

A. British and German Data 

The following monthly data for Great Britain were exam- 
ined :* 

1. Thirteen Railroad Preferred Stocks — British. 

2. Eight Corporation Stocks — U. K. 

3. Fourteen Railroad Debentures — British. 

4. Nineteen Ordinary Railroad Stocks — British. 



1 The data for the live Stock and bond price series were obtained from the 
Banker's Magazine, London. In a few oases interpolation had to be re- 
sorted to. In every ease the data for 1907 and 1908 had to be adjusted to 
the preceding years because of changes that were made at the close of 
1906 in the number of stocks or bonds quoted in each series. Both the old 
and the new figures were given for December of 1906. The proportion 
existing between the old and the new figures in that month was used as 
the medium through which the data for the succeeding two years were 
adjusted. For example, the old figure for December. 1906. for one of the 
series was 247.2 while the new figure for the same month was 303.7. The 
data for 1907 and 1908 wore then adjusted to the preceding data by multi- 
plying the figure for each mouth of these two years by -472/3037, or .814. 

The data for the - ** per cent consol were obtained from Volkswirt- 
tchaftliche Chronik. 1910. p. 362 

The quotations for the reserve of note and coin, bullion, public deposits, 
other deposits — all for the Bank of England — are for the first week of 
each month as given by the Financial Review, 

The quotations for the open market rate are for the first week of the 
month as given by the Financial Review. 

The quotations for the Bank of England bank rate are from the Statis- 
tical Abstract for the U K . lSi>7-1911. They are the average minimum 
rates of discount charged by the Bank of England in each month. 

Exports and imports of merchandise and traific receipts were taken from 
the Labour Gazette. 1902-1909. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 

6. Total Values of Stocks and Bonds. 

6. Consol — 2% per cent. 

7. Reserve of Note and Coin — Bank of England. 

8. Bullion— Bank of England. 

9. Bank Rate — Bank of England. 

10. Open Market Rate. 

11. Public Deposits — Bank of England. 

12. Other Deposits — Bank of England. 

13. Exports— U. K. 

14. Imports— U. K. 

15. Traffic Receipts — (20 principal railroads of U. K.) 

For Germany the following data were analyzed : 2 

1. Transactions on the Bourse. 

2. Twelve Stocks. 

3. Bank Clearings. 

4. Note Circulation, Reichsbank. 

5. Coin and Bullion — Reichsbank. 

6. Discounts and Advances, ReichsbanK. 

7. Deposits, Reichsbank. 

8. Bank Rate, Reichsbank. 

9. Open Market Rate. 

10. Prussian Konsol 3% per cent. 

11. Production of Pig Iron. 

12. Railroad Gross Earnings. 

13. Wholesale Prices. 

14. Prices of Producers' Goods. 

16. Prices of Consumers' Goods. 



5 For Germany "Umsatzsteuer" indicating the volume of transactions on 
the Bourse, bank clearings, the 3 V& per cent Prussian Konsol, production 
of pig iron and railroad gross earnings, were obtained from Volkswirt- 
achaftliche Chronik, passim, 1902-1909. 

The quotations for the Berlin bank and open market rates are for the 
first day of the month as given by the Financial Review. 

The coin and bullion, discounts and advances, deposits, and notes of the 
Reichsbank are taken from the London Economist. 

The average relative prices of 12 stocks were computed by the writer 
from data obtained from the Volkswirtschaftliche Chronik, Table 6, 1902- 
1909. The 12 stocks used are as follows: Gelsenkirchen Bergw. Akt. ; 
Harpener Bergb. Akt. ; Bochumer Gussstahl Akt. ; Dortmunder-Union Vorz. 
Akt. ; Konigs. u. Laurahutte, Akt. ; Stettiner Vulkan B. Akt. ; Berl. Mach- 
Inenbau ; Allgom. Elektr. Ges. Akt. ; Siemens & Halske, Akt. ; Hamb. Amer. 
Packetfahrt, Akt. ; Nordd. Lloyd, Akt. ; Dcutsch Bank Akt. An average 
was computed from the average monthly prices of each of the 12 stocks. 
These figures were reduced to the average monthly bases used In this study. 

The relative prices of producers' goods were computed by the writer 
from data obtained from the Vierteljahrsheften, 1902-1909. Sixteen com- 
modities are included in the series. See notation (15) at the close of 
Chapter IV for a full description of the commodities and the method of 
computation. 

The prices of consumers' goods were also obtained from the Viertel- 
jahrsheften. Fourteen commodities are included. See notation (15) at the 
close of Chapter IV for description and explanation of method. 

The index numbers of wholesale prices were computed by summating the 
price summations of the consumers' and producers' goods. Index numbers 
were then constructed from these summations by using the monthly aver- 
ages as bases. 



56 UNIVERSITY OF WISCONSIN STUDIES 

The actual data in each case were reduced to relative num- 
bers by the method already described. Groupings were se- 
lected by the same tests of correlation applied in the last chap- 
ter. 

B. The British and German Investment Groups 

Of the five series of British slock prices listed above, two 
were selected, the average prices of nineteen ordinary railroad 
stocks, and the total values of stocks and bonds. The relative 
numbers for these two series are given in Table E, Appendix 
to Chapter III. 

The nineteen ordinary railroad stock series was correlated 
with the stocks and bonds series. The results are given 
below : 

Railroad stock series precedes 1 month + .897 

" +.943 

lags behind 1 " +.865 

As would be expected very high concurrent correlation ob- 
tains between the two series. The two series were combined 
to form a British Investment Composite by the method de- 
scribed in the last chapter. 

Of the German series the two that belong to the Investment 
Group are the average prices of 12 stocks, and transactions 
Oil the Bourse. The other series which naturally would be- 
long to this group is bank clearings, but a chart of the index 
numbers does not reveal any cyclical fluctuations at all. but 
only a rather steady secular growth. Tins series, because of 
the relatively small use of checks or similar credit instruments 
in Germany, is at all events of comparatively little significance. 
The index numbers for the 12 stocks and transactions on the 
Bourse arc given in Table F. 

The coefficients of correlation between the average prices of 
the twelve stocks and transactions on the Bourse are given 
below : 

Transactions on Bourse precedes 2 months +.643 

1 month +.659 

" +.651 

lags behind 1 " +.610 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 57 

It appears that the stock series lags one month behind the 
transactions on the Bourse. The two series being substan- 
tially concurrent were then averaged together by the method 
previously described to form the German Investment Group. 

C. Comparison of the Three Investment Groups 

The next task is to ascertain the chronological relation of 
the investment composites of the three countries. The rela- 
tives for the three groups are given in Table K. The two 
European composites were plotted with the American com- 
posite. The curves appear in Chart 7. From this chart it is 
evident that there is very close correlation between the Amer- 
ican and British composites. For the two years 1902 and 1903 
there appears to be little or no similarity between the German 
composite and the other two curves. For the rest of the 
period the correspondence is quite close. The secular trends 
of the three curves have been eliminated by the method of 
moments. 

D. Comparison of Bonds of the Three Countries 

At this point it may be of interest to add a comparison of 
British and German consols and some American security of 
equal grade. Mitchell 3 shows clearly that we have no govern- 
ment security which can be fairly compared with European 
government securities, and he used in place of United States 
securities a railroad bond which meets the requirements fairly 
well, viz., the bonds of the West Shore Railroad. Chart 8 
shows the comparison of the relative prices of the English 
2^4 per cent consol, the Prussian 3^ per cent consol and the 
bonds of the West Shore Railroad. It will be noticed that 
the correspondence is closest between the British and Amer- 
ican bonds. 

A difference may here be noted between the long run trend 
of bonds as compared to the long run trend of stocks and com- 
modity prices. The short-time, cyclical fluctuations of bonds 



' Mitchell, Business Cycles, p. 164. 



58 



UNIVERSITY OF WISCONSIN STUDIES 



correspond with the fluctuations of stocks and commodity 
prices, but the long-run trend is in the opposite direction. Both 
the principal and the interest of bonds are fixed, and are con- 
stantly depreciating in value because of diminishing purchas- 



CHABT 7: INVESTMENT COMPOSITES 




3.00 



1902 ' 1903 1904 1905 1906 190.7 1908 



ing power due to a depreciating money standard. On the other 
hand stocks participate in the larger earnings and increased 
value of business assets which normally result from rising 
prices. Again the current rate of interest on long-time invest- 
ments tends to rise with rising prices, and therefore the fixed 
interest rate of bonds is capitalized at higher and higher rates, 
and bond values are correspondingly reduced. Hence, while 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 59 

the short-time fluctuations of bonds correspond with the move- 
ments of the business cycle, the long-run tendency is the oppo- 
site of the movement of stocks and commodity prices. 



CHART 8: BOND PRICES 



110 



11C 



109 



100 



WEST SHOBE BOND 
BRITISH CONSOL 
PBUSSIAN CONSOL 




1902 1903 1904' 1909 1906 1907 1908 



E. The British and German Barometers 



Exports, imports, and traffic receipts are the British series 
which fall in the industrial group. Traffic receipts however 
fail to register any cyclical fluctuations. The receipts follow 
a level course until the close of 1905 when a sudden drop oc- 
curs after which the receipts continue relatively constant again. 



60 UNIVERSITY OF WISCONSIN STUDIES 

Only two series, therefore, remain for the industrial group, 
imports and exports. The relative numbers are given in 
Table G. The coefficients of correlation between the two series 
are as follows : 

Imports precedes 1 month -K816 

" +.882 

" lags behind 1 " +.759 

High concurrent correlation is evident. In the case of the 
United States, exports were found to lag considerably behind 
the rest of the industrial group. In Great Britain, because 
of the extraordinary importance of her foreign trade, exports 
as well as imports constitute a sensitive indicator of prosperity 
and depression. 

Of the monthly data available for Germany the analysis of 
groupings in the United States would indicate that production 
of pig iron, railroad gross earnings and wholesale prices 
should be classed together in the industrial group. The prices 
of consumers' goods and producers' goods might also be 
classed here, but as both are represented in wholesale prices 
the analysis of these two groups, as in the case of the United 
States, may be deferred until the following chapter where the 
theory of prosperity cycles will be discussed. The relative 

TABLE VII 

COEFFICIENTS OF CORRELATION— GERMAN INDUSTRIAL 

GROUP 

Each series precedes ( — ) or lags behind 
( + ) wholesale prices by: 

+3 mo. 

+.845 

numbers for the remaining series are given in Table H. In 
Table VII are given the coefficients of correlation between 
Wholesale Prices and the other series in the group. 4 Pig iron 



Series correlated with 










Wholesale Prices: 


— 1 mo. 


mo. 


+1 mo. 


+2 mo 


Pig Iron Production: 


+.917 


+.922 


+.926 


+.920 


Railroad Receipts: 


+.784 


+.805 


+.837 


+.844 



4 A slight error is involved in the coefficients given in Table VII owing 
to the fact that the deviations from the average of a seven-year cycle are 
correlated with deviations from the averages of six and five-year cycles. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 61 

production is substantially synchronous with prices, lagging 
as it does only one month behind. Railroad receipts lags some- 
what more behind. Hence wholesale prices and pig iron pro- 
duction were the only series included in the German industrial 
composite. These two series were combined by the usual 
method. 



CHART 9t nTDUSTRlAL COMPOSITES 




1902 1903 1904 1905 1906 1907 1906 



F. Comparison of the Three Barometers 

We turn now to the chronological relation between the in- 
dustrial barometers of the three countries under considera- 
tion. The relatives for the American, British and German In- 
dustrial composites appear in Table K. The three composites 



62 UNIVERSITY OF WISCONSIN STUDIES 

are plotted together in Chart 9. The secular trends have been 
eliminated by the method of moments. From this chart it is 
evident that the cyclical movements are quite closely concur- 
rent. 

G. The British and German Banking Groups 

In the Banking Group we find among the available British 
data the following: reserve of note and coin of the Bank of 
England, bank rate of the Bank of England, open market rate, 
bullion in the Bank of England, public deposits of the Bank 
of England, and "other deposits" of the Bank of England. 
Of these it was found best to make use of only the first three 
named. Bullion in the Bank of England was found to be al- 
most exactly identical in its changes to the reserve of note 
and coin. Hence only one was used, and the reserve of note 
and coin was selected. "Other deposits" showed no cyclical 
movements, and public deposits proved to be very irregular. 
Both were ruled out. The index numbers for the other series 
are given in Table I, Appendix. 

The coefficients of correlation between the bank rate, open 
market rate, and the reserve of note and coin were computed. 
The coefficients are given in Table VIII. 

TABLE VIII 

COEFFICIENTS OF CORRELATION— BRITISH BANKING GROUP 

Each series precedes ( — ) 
or lags behind ( + ) 
Reserves by: 
Series correlated with Reserve of Note 

and Coin — 1 mo. mo. +1 mo. 

Bank Rate —.254 —.538 —.519 

Open Market Rate —.236 —.501 —.474 

Concurrent inverse correlation obtains in each case. These 
three series were averaged together to form the British Bank- 
ing composite by the method used above. The relatives thus 
derived appear in Table K. In constructing this composite 
the bank and open market rates were inverted. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 63 

Of the available German data the following fall in the Bank- 
ing Group : note circulation, coin and bullion in the Reichs- 
bank, discounts and advances of the Reichsbank, deposits of 
the Reichsbank, bank rate, open market rate. Note circulation 
shows a steady secular growth, but no cyclical movements of 



CHAM 10: BAHKIHO COMPOSITES 




1902 1903 1904 1906 1906 1907 1906 



any note. It was therefore omitted. The index numbers for 
the remaining five series are given in Table J. 

Coin and bullion in the Reichsbank was correlated with the 
other series in the group. The coefficients of correlation ap- 
pear in Table IX. 



64 UNIVERSITY OF WISCONSIN STUDIES 



TABLE IX 

COEFFICIENTS OF CORRELATION— GERMAN BANKING 

GROUP 

Series correlated 

with Coin and Bullion Each series precedes ( — ) or lags behind 

In Reichsbank: ( + ) coin and bullion by: 

— 1 mo. mo. +1 mo. -f-2 mo. -+-3 mo. +4 mo. +5 mo. 
Deposits: -J-.426 +.502 +.389 

Loans: — .523 — .5S8 — .584 



Open Market 














Rates: 


—.603 


—.671 


—.711 


—.732 


—.676 




Bank Rate: 


—.504 


—.636 


—.699 


—.756 


—.769 


—.739 



From this it appears that deposits and loans are substantially 
synchronous with coin and bullion. In the case of deposits 
the correlation is perfectly synchronous, while in the case of 
loans there is a lag of one month. The open market rate and 
bank rate lag three and four months behind, respectively. 

Coin and bullion, deposits and loans (inverted") were there- 
fore combined to form the German banking composite. 

H. Comparison of the Three Banking Groups 

The three banking composites are compared in Chart 10. 
The relatives are given in Table K. It appears that the three 
groups are fairly concurrent, though not entirely so. On the 
whole the American series seems to precede the European 
series slightly. 

I. Comparison of the Amplitudes of Fluctuation of 
Different Series 

It will be of interest to compare the three countries as to 
the amplitude of the fluctuations of the different series. Table 
X is therefore appended showing the standard deviations of 
the different series. It is of course clear that the larger the 
standard deviation the greater is the fluctuation of the series. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 65 



TABLE X 

STANDARD DEVIATIONS OF SERIES IN UNITED STATES, 
GERMANY, AND GREAT BRITAIN 

Series United States Great Britain Germany 

Stock Prices 13.0 (Ten 3.8 (Stocks & 10.0 

stocks) Bonds) 

16.0 (Forty 6.2 (Nineteen 

common) Ord.) 

Shares Traded 34.7 29.6 

Liabilities of Busi- 
ness Failures 98.0 

Wholesale Prices... 4.6 8.5 

Production of 

Pig Iron 22.4 10.8 

R. R. Gross Earnings 13.9 

Immigration 32.7 

Imports 15.7 7.8 

Exports 15.4 

Cash Reserves 9.3 7.2 9.3 

Deposits 12.6 9.7 

Loans 11.1 13.4 

Money Rates 16.0 (Com. 22.6 (Bank) 23.5 (Bank 

Paper) Rate) 

94.3 (Call 27.5 (Open 25.3 (Open 

Loan) Market) Market) 



66 



UNIVERSITY OF WISCONSIN STUDIES 



APPENDIX TO CHAPTER III 

TABLE E— INDEX NUMBERS OF THE SERIES IN THE 
BRITISH INVESTMENT GROUP 



1902 



1903 



1904 



1905 



Prices of 
Stocks 

and 
Bonds 



January . . . 
February . . 
March .... 

April 

May 

June 

July 

August .... 
September 
October . . . 
November 
December . 

January . . . 
February . 
March ... 

April 

May 

June 

July 

August . . . 
September 
October . . 
November . 
December 

January . . . 
February . . 
March. . . . 

April 

May 

June 

July 

August 
September 
October. . . 
November . 
December . 

January . . . 
February . . 
March 

April 

May 

June 

July 

August 
September 
October . . . 
November 
December . 



102.3 
103.0 
103.3 
103.3 
103.8 
105.0 
104.7 
104.7 
104.1 
104.1 
103.8 
103.6 

102.7 

103.0 

102.9 

102.3 

102.4 

102.3 

101.9 

101.8 

101.1 

100.9 

100.7 

100.6 

*,-fl 

98.8 

96.2 

97.3 

98.9 

99.9 

100.5 

100.1 

99.8 

100.6 

102.0 

102.1 

102.2 

100.9 
102.1 
103.6 
103.1 
102.2 
102.5 
102.6 
103.6 
104.2 
104.2 
104.0 
103.3 



Prices of 

19 R. R. 

Ord. 

Stocks 



106 

108 

108 

107 

109 

111.0 

110.0 

109.6 

106.8 

106.9 

107.7 

107.7 

105.0 
107.5 
106.4 
105.3 
104.6 
104.7 
105.0 
105.7 
103.7 
104.7 
100.2 
99.0 

97.1 
89.0 
95.3 
100.0 
102.8 
101.4 
100.5 
100.0 
101.7 
105.4 
101.8 
103.3 

99.9 
103.8 
105.2 
102.2 
101.4 
100.8 
101.2 
101.8 
104.5 
105.4 
106.7 
105.6 



1906 



1907 



1908 



Base 



Prices of 
Stocks 

and 
Bonds 



January . . . 
February . . 
March .... 

April 

May 

June 

July 

August .... 
September 
October. . . 
November 
December . 

January . . , 
February . 
March ... 

April 

May 

June 

July 

August . . . 
September 
October. . 
November . 
December . 

January . . . 
February . . 
March 

April 

May 

June 

July 

August .... 
September 
October. . . 
November . 
December . 



January . . . 
February . 
March 

April 

May 

June 

July 

August . . . 
September 
October. . 
November 
December 



Prices of 

19 R. R. 

Ord. 

Stocks 



102.5 
102.9 
103.0 
102.2 
101.8 
101.3 
100.7 
102.4 
101.2 
100.3 
101.4 
101.5 

100.1 
99.6 
96.8 
96.6 
95.6 
94.1 
95.4 
92.2 
93.0 
92.9 
91.4 
92.5 

92.8 
92.9 
93.1 
92.9 
94.1 
94.3 
94.4 
95.0 
95.6 
95.3 
96.5 
96.7 

(000) 
3,019, 
3.010, 
2,997, 
3.004. 
3.007, 
3,000, 
2.994. 
2,981. 
2,982. 
2.971. 
2.973. 
2.975. 



102.3 

103.4 

101.7 

100.2 

99.5 

99.2 

100.1 

103.0 

100.7 

94.0 

99.8 

99.6 

97.1 
96.4 
93.6 
94.0 
92.7 
91.1 
93.2 
90.3 
91.2 
91.1 
92.5 
94.7 

92.3 
92.0 
89.7 
90.1 
89.6 
91.5 
89.8 
89.6 
91.5 
92.3 
90.8 
90.3 

(000) 
258.900. 
252,000. 
251.900. 
253.800. 
253,300. 
253 , 100 , 
250.500. 
246.600. 
245.800, 
243,700. 
248,800. 
!248.100. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 67 

TABLE F— INDEX NUMBERS OF SERIES IN THE 
GERMAN INVESTMENT GROUP 



Trade 

on 
Bourse 



Prices 
of 12 
Stocks 



Trade 

on 
Bourse 



Prices 
of 12 
Stocks 



1902 



1903 



1904 



1905 



January . . 
February . 
March. . . 

April 

May 

June 

July 

August 
September 
October . . . 
November 
December . 

January . . . 
February . . 
March 

April 

May 

June 

July 

August 
September 
October. . . 
November . 
December . 

January . . 
February . 
March . . . 

April 

May 

June 

July 

August . . . 
September 
October. . 
November 
December . 

January . . , 
February . . 
March .... 

April 

May 

June 

July 

August .... 
September 
October. . . 
November . 
December . 



104.1 
112.0 
91.3 
86.3 
99.9 
112.1 
91.9 
76.3 
79.2 
78.7 
76.0 
84.0 

102.1 

100.0 

102.0 

100.3 

81.3 

80.7 

87.0 

74.7 

69.4 

118.0 

105.7 

119.2 

94.1 

108.1 

77.9 

84.9 

74.9 

102.0 

108.3 

131.4 

103.4 

115.9 

140.9 

137.9 

130.2 
140.5 
151.7 
154.2 
138.5 
114.9 
164.8 
182.8 
170.5 
151.3 
133.9 
120.0 



85.4 
88.3 
88.1 
85.7 
86.0 
87.8 
85.8 
84.4 
83.2 
81.9 
82.3 
83.8 

87.0 
88.9 
91.4 
91.5 
90.0 
89.2 
90.1 
90.7 
90 3 
93.2 
96.1 
97.4 

97.6 

94.1 

95.2 

97.0 

98.2 

99 5 

100.8 

104.2 

104.3 

104.8 

107 3 

108 2 

109.8 
112.2 
113.8 
114.0 
113.5 
115.1 
116.9 
117.6 
116.1 
115.9 
114.2 
110 5 



1906 



1907 



1908 



Base 



January . . 
February . 
March. . . 

April 

May 

June 

July 

August . . . 
September 
October. . 
November 
December , 

January . . , 
February . . 
March 

April 

May 

June 

July 

August 
September 
October . . . 
November . 
December . 

January . . . 
February . . 
March 

April 

May 

June 

July 

August .... 
September 
October . . . 
November . 
December . 

January . . . 
February . . 
March .... 

April 

May 

June 

July 

August .... 
September 
October . . . 
November . 
December . 



114.7 

105.9 

114.8 

147.8 

146.3 

133.8 

107.8 

98.3 

122.4 

93.4 

92.6 

110.6 

97.5 

83.5 
107.6 
74.2 
78.4 
78.9 
69.9 
59.8 
58.7 
61.7 
57.5 
49.5 

57.2 
49.7 
54.3 
51.8 
80.9 
78.4 
70.4 
76.8 
96.4 
80.8 
93.5 
78.7 
(000) 
1,569 



1,361 
1,297 
1,411 
1,197 
954 
1,035 
1,094 
1,329 
1,361 
1,218 
1,072 



113.0 
112.8 
112.2 
113.2 
113.3 
112.5 
110.5 
110.6 
109.1 
108.2 
108.0 
109.0 

109.9 

108.1 

103.8 

101.6 

100.9 

99.8 

99.0 

95.0 

96.8 

97.6 

94.6 

93.9 

96.8 

96.1 

95.8 

97.2 

97.9 

96.3 

97.2 

98.5 

99.9 

97.7 

97.8 

97.5 

(000) 

2,227 

2,239 

2.219 

2,242 

2,238 

2,220 

2,197 

2,223 

2,255 

2,254 

2.246 

2.252 



68 



UNIVERSITY OF WISCONSIN STUDIES 



TABLE G— INDEX NUMBERS OF SERIES IN THE 
BRITISH INDUSTRIAL SERIES 



Imports 



Exports 



Imports 



Exports 



1902 



1903 



1904 



1905 



January . 
February 
March . 
April . . . 
May . . . 
June . . . 
July. . . 
August . 
September 
October. . 
November 
December 

January . 

February 

March . 

April . . 

May.. 

June.. 

July.. 

August 

September 

October. . 

November 

December 

January . 
February 
March . 
April . . 
May . . . 
June . . . 
July... 
August 
September 
October. . 
November 
December 

January . 
February 
March . 
April . . 
May.. 
June . . 
July . . 
August 
September 
October. . 
November 
December 



97.3 
90.6 
82.1 
98.2 
93.3 
91.5 
95.6 
90.1 
93.0 
92.2 
87.6 
90.2 

89.9 
88.2 
94.2 
93.1 
90.2 
93.1 
98.8 
95.4 
101.1 
94.9 
94.6 
97.9 

89.3 
95.9 
97.7 
96.1 
96.4 
97.5 
88.8 
94.6 
95.9 
97.3 
98.4 
98.9 

92.8 
93.1 
98.2 
92.1 

100.9 
98.2 
97.1 

104.7 

101.8 
95.6 

103.2 
99.4 



85.7 
79.0 
78.2 
88.3 
80.6 
79.9 
85.9 
82.2 
83.5 
83.7 
85.9 
85.2 

87.8 
84.4 
88.5 
86.9 
85.8 
83.7 
85.4 
86.8 
81.7 
86.1 
80.1 
86.6 

85.0 
88.6 
85.4 
88.3 
85.8 
90.5 
81.7 
89.1 
90.9 
84.8 
90.8 
98.8 



93 



90.7 

96.2 

97.7 

91.9 

99.8 

103.0 

97.7 

102.9 

101.0 



1906 



1907 



1908 



Base 



January . . . 
February . . 
March 

April 

May 

June 

July 

August 
September 
October. . . 
November 
December . 

January . . . 
February . . 
March 

April 

May 

June 

July 

August 

September 
October . . . 
November 
December . 

January . . . 
February . . 
March 

April 

May 

June 

July 

August 
September 
October . . 
November 
December . 



January . . 
February . 
March . . . 

April 

May 

June 

July 

August . . . 
September 
October. . 
November 
December 



103.8 
103.3 
106.9 
100.0 
110.6 
108.0 
105.2 
109.0 
100.2 
107.3 
108.2 
102.3 

117.5 
115.1 
115.9 
120.9 
113.2 
107.9 
113.1 
110.0 
100.9 
113.3 
111.0 
104.8 

109.3 
114.0 
104.5 
100.1 

95.3 
104.0 
101.5 

95.4 
106.8 

99.7 

96.9 
106.4 

(000) 
51.500 
46,010 
49,800 
47,060 
46,450 
44,360 
46.150 
44.790 
49.920 
50.830 
51 .490 
53.420 



108. 

106. 

111. 

101. 

111. 

115. 

110.3 

113.3 

107.0 

110.5 

114.6 

110.5 

123.8 
118.9 
122.2 
129.3 
130.2 
124.2 
133.4 
126.3 
123.2 
127.5 
124.6 
115.1 

121.4 
129.5 
115.9 
115.2 
109.7 
108.8 
111.2 
102.5 
111.0 
109.9 
101.3 
103.4 

(000) 
28.360. 
27.000. 
28.410. 
26.630, 
28.350. 
26,610. 
30,300. 
29,570, 
28,530, 
30,050, 
28,770, 
28,440, 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 69 



as oi as 

tf ft-g 

K o<_o 
BJSS 



3 
3.2 

o «-> 
be "3 

'&£ 

— ! 



o CO CO <o w »o iO t- Tj< CO. «D «0 <N (N O CO H 00 lO O lO Tf< <N CO 



O OS OS OS "*< "<* lO CO »-< "# CO CO OHHOSO<DNOOmoOOOOO 



inNOOO-HifJOOOO^NO © O <© CO t^> CI 00 © >0 t}< 00 © 



i i -X! ^.0.5 
. ; • » 9 S S 9 

3 ■%£ a^ 3-3 3 Srts o 



as 






fl-SSfeSflA 



. as 53 
: : -tSSsal 



w -rr n a n w 1— « ^ >-*»t^ r> n> w *rr; «a n ra 2^3 ^ ^r^ o as 
°3 r^ "S 3*5! 3 3 3 OS "►"^ ^r*^^"^! ^ 33*^i5a 

-sfiH^;"<<5h-5>-,-<cz}OZ P bfa^<^i-s | -i<a}OZt-l 



-OCh 



tJtpHffliOOONM'fOSrJitO cOiHrt(DOMO)«<ONrl<N 



<u S a> 

rt a-g 

• "S 3 

« is 



oS 3 jg ^1 



W)"3 

•Jr ° 

p- 






OSIOtJ»00C<IOS00C0"0»O«O^ 



*£ 






&£ 



°33'S- • • . 2§£g H =3 3o_; 
3 E £32. >.as . ?Jo £ as 3 C P33 



: -»a«aa 



>-s fa ^; < ,^i >-; <-s <* cc O Z M ^h^j^^^i-a^aiOZH 



OS 



70 



UNIVERSITY OF WISCONSIN STUDIES 



w 



rOPn 



<u E <u 

K §3 



a 
o .3 



OOOr^^"3 , COtN'-<OOOOi 

.-<ooo©oooooa:o 



NNtOtOOOt»CNeCO£N 

ocoooooooooooo ocioct> 



cococococococococoeococo 



NNNH00©H«HNO® mCONOO'J'OONOOcC 
OOCMTfCCHCOCKt^KH 

S.-f^r^^coco — cocoooo <N<Ntoco"cnco-<ct<iocoooco''tf 1 

T-IOOOOCOOCOC5 

HHWrtHrtHH^HH (N <N IN <N IN IN CI IN <N (N CN <N 



OOOOOOOOOOOO 
O 00 IN <N t~- CO t— CO CO C5 00 t>. ccocccccccca 

coo ooo o o o ooo 

ic cc oo t}< co <— i co o t~- m co cm 

"-CCCOOOfflOaO Mi-iNOOW^MOOOCfl'iO 









-J • 



£§.a : ; ; --gS « S g 

(3*1 C5 n Si SrS -1 G ti O 4) 





00 


0) 




o 

OS 


03 



o"C 



o E <y 

rf"8H 



a 
c.2 

c *J 

•- 1 3 
t£"3 

«| 

— 



OCt^CMN«CONNT)i C^^flOOOC-OOO^CON 
lO Tt< Tf CC CO CO CO CC t"- O O N CO CO rf Tti CO CO iC lO t$* 00 i— I O 

OOOOOwOOO"— li— — r<iHHH^ I— ■ -^— -f— ^ -i— < »—l t— I i — I 



CO 00 OS 00 O CO O f- <N —I t^ CO ©!>©CO^<N<N00lNiCCOCO 

SCO CO Ci CO ^ —' (N — •* ■* 53 C*Nr4hCCXi l N003 
OOCsOOOOOOOO OOO— O— OOOOOO 



CO N TJ< CO OS ■>*« CO OS IN CO ■* O «-i OS t-- 00 ■* CO CO CO O 00 t*- 00 



b& : : 

i~ ej r- * 
.-. 3 •§ ' 



. .1- ,h L 

■•5 h.42 n 

•^Sice's 



5^^ frg >»&■=£ > S 

C "js C5 t^ as fc; -— < — «~TC a o 



Sg-g : : : :1JJBgg 



HANSEN-CYCLES OF PROSPERITY AND DEPRESSION 71 



M C. w 



Or-^«»WOO«<OOWiO OCOOHCONCNOirf.H 












00^N»OHN»(0*C0« o»«0«»H^N<SN9« 



c»cfcOooc50iCia>©^£© 









3..C cS £ tf g-3 3 £7 o O <u 






-u o t> ?< 




8 

CD 



cJ 3-§_ • ' ■ 3 «"£ «> 3 






CHHNWOffiOiMOlQCO Oi^t-^O^OOT^^OiO 



SoOOOt^O)00050)ON05 






OOOOr-CNt-^iCOCC^ (CMOOOOSH^iOHMCK 



Oi0500QOOOC6C>05000C003 



SoOHOOOiOlHOfflOl 



00.OHONOCOHNMM a^HMHSOCOHOONMO 



^-i(35COeOOOOC6C6000>C^iO 

oo5C»05o:oa>cccB050co 







72 









UNIVERSITY OF WISCONSIN STUDIES 






J4 a> 



g ° s 

« a be 
Si? a 



TfOOT*<cOC»00*-iiOT}<C5tO<© 



00CC<NOi00<OCO<©0000-*O> 



eocoooc^<NC<i(NC^(Nco-^<eo 



(OM(OOOTfiWT)<NtOO)1< 



^OQCOOOCOCOCOCOCOCC^^ 



05t>-05CO(N050COOOOOCOTt< 



gocoocooooooo 

Soooooocooooo 



l|SlMi|l.li| 

"3^*3 3^ 3 3 3 «> /Sf ►£ /^ 



,r? : 



■ : : -«gsai 



Iki 



*■< c« ^ 



^1 43 



g ° C 

JfiUI 

£ 5 c 



at 



<N <N <N 00 CT> 00 *-< © 

(Nccco-h— KM-*-* 



OlOOONOOOiOMaiON 



OMOONOOiOOWHtOOiO 

09 . 



OMOO'HNOMOOi'HW* 



(N05«5N(CN(OM(NNOi-i f~«Oir3©<NCOTj<OTf<«0(£>W 
0305OO000505OO000CO 0!00!OlOO>0)ffiOOXO> 



111* 



. . . ••S *-^.S 






oJ«5<J75 3 3 3 a, o o » 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 73 

TABLE J— INDEX NUMBERS OF SERIES IN THE 
GERMAN BANKING GROUP 













Open 








Reserves 


Deposits 


Loans 


Market 
Rate 


Bank 
Rate 






107.8 


102.4 


85.5 


89.2 


57.6 




Feb 


107.5 


123.2 


92.5 


106.7 


65.7 




March. . 


108.7 


110.3 


90.3 


92.8 


67.7 




April. . . 


108.0 


97.8 


88.5 


83.3 


70.0 




May 


108.4 


93.5 


83.7 


97.1 


72.5 


1902 


June .... 


107.9 


103.9 


82.7 


93.5 


73.7 




July 


107.0 


95.5 


84.3 


93.5 


75.0 




Aug 


105.4 


96.3 


84.6 


99.3 


75.0 




Sept .... 


102.8 


98.4 


81.8 


91.5 


75.0 




Oct, 


103.1 


95.4 


86.7 


83.3 


71.2 




Nov. . . . 


100.7 


88.2 


82.5 


95.0 


62.6 




Dec. 


100.0 


102.4 


85.6 


91.7 


60.0 






98.2 


98.3 


95.1 


78.0 


76.7 




Feb 


96.2 


91.8 


88.3 


76.2 


87.6 




March . . 


95.1 


99.6 


85.3 


61.9 


79.0 




April . . . 


91.0 


90.3 


87.8 


72.8 


81.6 




May 


92.2 


111.2 


94.5 


92.9 


84.5 


1903 


June 


92.8 


103.6 


99.7 


97.2 


86.1 




July.... 


95.7 


90.2 


95.6 


93.5 


100.0 




Aug 


96.3 


94.1 


93.8 


103.3 


100.0 




Sept 


99.0 


89.6 


90.2 


106.7 


100.0 




Oct. 


104.9 


89.7 


92.1 


100.6 


95.0 




Nov. . . . 


102.1 


90.5 


92.8 


83.1 


83.5 




Dec, 


101.8 


95.1 


94.1 


80.4 


80.0 






99.6 


97.4 


97.6 


69.7 


76.7 




Feb 


96.7 


94.5 


95.0 


72.3 


87.6 




March . . 


96.5 


90.4 


95.5 


92.8 


90.3 




April. . . 


95.0 


97.0 


101.3 


90.3 


93.3 




May 


95.9 


80.1 


95.2 


92.9 


96.6 


1904 


June 


95.7 


85.1 


89.4 


93.5 


98.3 




July 


94.5 


94.7 


89.0 


97.2 


100.0 




Aug 


95.7 


89.3 


88.6 


82.8 


100.0 




Sept 


97.0 


90.0 


86.0 


79.8 


100.0 




Oct 


97.4 


93.3 


87.1 


86.7 


95.0 




Nov. . . . 


107.0 


93.1 


82.3 


97.8 


104.3 




Dec, 


115.2 


94.4 


81.5 


83.1 


100.0 






115.5 


97.4 


82.1 


83.6 


96.0 




Feb 


113.2 


98.7 


87.1 


72.3 


87.6 




March . . 


112.0 


106.6 


88.8 


54.2 


79.0 




April. . . 


113.1 


109.5 


88.8 


69.4 


70.0 




May 


108.6 


107.6 


98.9 


64.8 


72.5 


L905 


June .... 


107.6 


102.1 


99.0 


70.1 


73.7 




July 


102.2 


97.7 


103.3 


62.3 


75.0 




Aug 


98.7 


92.9 


101.2 


66.2 


75.0 




Sept 


97.1 


98.1 


106.1 


76.2 


75.0 




Oct 


93.1 


98.5 


105.8 


93.6 


95.0 




Nov. . . . 


93.3 


95.2 


105.4 


106.9 


104.3 




Dec 


95.5 


94.5 


99.1 


105.9 


110.0 



74 



UNIVERSITY OF WISCONSIN STUDIES 
TABLE J— Continued 













Open 








Reserves 


Deposits 


Loans 


Market 
Rate 


Bank 
Rate 






101.9 


99.9 


99.8 


94.7 


115.2 




Feb 


101.2 


100.5 


100.1 


99.1 


109.4 




March . . 


100 


100.5 


104.5 


112.0 


112.8 




April. . . 


102.0 


99.4 


98.4 


114.4 


116.5 




May 


101.8 


92.0 


97.2 


105.1 


120.9 


1906 


June 


99.7 


91.1 


95.9 


105.0 


110.7 




July 


94.9 


104.2 


106.4 


120.5 


112.5 




Aug 


93.7 


94.9 


107.9 


111.6 


112.5 




Sept 


91.2 


87.6 


103.4 


106.7 


112.5 




Oct 


83.4 


97.5 


115.6 


121.4 


118.8 




Nov. . . . 


86.8 


97.4 


118.6 


124.7 


125.2 




Dec 


86.1 


101.8 


117.6 


114.7 


120.0 






86.3 


104.2 


111.8 


128.2 


134.4 




Feb 


89.9 


100.1 


111.9 


133.2 


131.3 




March. . 


91.6 


95.9 


116.2 


150.8 


135.4 




April. . . 


91.3 


108.1 


120.3 


156.1 


139.9 




May 


93.5 


106.6 


118.6 


129.4 


132.9 


1907 


June .... 


95.0 


110.0 


123.1 


143.9 


135.2 




July.... 


90.8 


98.5 


119.4 


148.0 


137.5 




Aug 


96.0 


112.6 


119.7 


144.7 


137.5 




Sept 


93.7 


113.2 


129.0 


141.0 


137.5 




Oct 


90.1 


101.6 


118.1 


145.8 


130.7 




Nov. . . . 


85.2 


108.1 


130.9 


130.6 


135.8 




Dec 


78.6 


85.7 


132.5 


160.6 


150.0 






90.6 


100.5 


128.2 


156.1 


144.1 




Feb, 


94.8 


91.1 


124.3 


140.9 


131.3 




March . . 


95.6 


96.8 


119.9 


135.2 


135.4 




April. . . 


100.0 


97.8 


114.8 


114.4 


128.2 




May 


99.8 


108.8 


112.0 


117.1 


120.9 


1908 


June 


101.6 


104.5 


109.8 


97.2 


122.9 




July .... 


114.3 


119.5 


102.0 


85.7 


100.0 




Aug 


114.5 


120.1 


104.4 


91.1 


1000 




Sept. . . . 


118.7 


122.9 


102.9 


99.0 


100.0 




Oct. 


128.1 


124.4 


94.7 


69.4 


95.0 




Nov. . . . 


125.1 


127.4 


88.0 


62.2 


83.5 




Dec 


122.7 
(000) 


126.2 

(000) 


89.1 
(000) 


62.8 


80.0 






41.890, 


26.240, 


57,520, 


4.48 


5.21 




Feb 


47,330, 


24,720, 


42,270. 


3.28 


4.57 




March . . 


48,330, 


28.630, 


42,470. 


3.23 


4.43 




April. . . 


44,930. 


27,380, 


53,230, 


3.60 


4.29 




May .... 


47,930. 


28,230, 


47,150. 


3.09 


4.14 


Base 


June .... 


50,100, 


29,760. 


46,330. 


3.21 


4.07 




July.... 


46,280, 


26,950, 


53,850. 


3.21 


4.00 




Aug 


48,120, 


26,040, 


45.500. 


3.02 


4.00 




Sept. . . . 


46,790, 


28.870. 


47,280. 


3.28 


4.00 




Oct 


40.560, 


26,610, 


61,120. 


3.60 


4.21 




Nov. . . . 


42,850. 


24,920, 


52.990, 


4.21 


4.79 




Dec 


43 ,350 . 


27.770. 


49,800. 


4.36 


5.00 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 75 



a fee . 

S-* a 

E c o 



'NOMNCO^'-iN 



I l + l + M I I I 1 + 



C3 2 

s »2 a 

*- 3 S 



8 



-H'Hi-KNiMOOOO'-hO 



+ + 



a "a ■ 

£ 0! S 
M « o 



OOOrJicoOOiCHiNOOmO 



+++ 



■531 
■fi a o 



+++++ I I ++ I + 



+ 



+ 



+ 



A . ■ 
co ce p, 

if* a 



++ I ++++ I ++ 



+ 



+++ I 1 + 



Is -§ <^ 

r «) S 
(i ^ o 



+ + 



+ 



g.g g 






+ + 



.1 3 §• 

a 






II I I I I I I I 11 + 



o a o. 

II § 



«H(MU5h6iONtJIi-ii 



I I 



76 



UNIVERSITY OF WISCONSIN STUDIES 




l'*Mt^'*rtNf-iO'*N 



I I I I 1 I I I I I ++ 




+ +I I I I I I I I I I 



lis S 

S oo w 

O a 



•4 **> • 

a-Sg- 

■s-a a 



hCocij^ONNMiOOO 0( 



I II I I 



f— I —t 1— li— Ci— ll-Hi— IC^C^»— If I 



iHQO^OMONOOOOOO'U' 



+111+11 I++++ 



I I 1 + 



I 

a 
< 



C R O 



iNOMNhwhh 



OC053"^«0'-i05iO(Ni0Tf(C0 



I I I I I I I I I I I + I I + I + I I ++ I II 



•a a a 



ihNOOXOCOOOOMihOOOO 
OCMClNNCOTfHWOH 



I I 



+ + + | + + + + " 



3 W) . 

S.S a 

£ c o 






a 

g of g. 
I ~ 5 

a^o 
< 



II I I I I I I I II 



++++++ 



g a c. 

'Cffl s 

Don 

a>o 



I I 



+ + + 



fr& 



a— • • a ^ a a 



•e*--e-s 



-s|| 



sa_gaa 






HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 77 



hhQi-'OhhionOIOJN 



+ +I + 



S<piocpc?05OTOr^ot-»o 
OOOOOlOOOlOONO 






++++++++++++ +++ 



I 1 



+ 



I I 



TT 



3! 



+++ I ++++ I +++ 



I ++ ++ 1 1 1 1 1 1 1 1 1 1 



CO«Ot^Tt<CO"<*<l>005i 



I I 



51! 



++++ 



TTT 



OJ3 5 h? ^i" ^5i 



9.1 



hO-SoJ S.03 9-5 3 P. "g O 5 



b£ 



si|ii&si|!ill 

-< <V i— i M<»_i 3 3 3 n, O " « 






VNIYKKSITY OF WISCONSIN STUDIES 



9 









— 



iJe 



.f N N i" ^ .- ^ N C> C .-O -< 

a -n — — .-? w « — to a 

I ! I I ++++++++ 



++i i i i iTTTT i 



£3 X M — X Efl MHtefiFlC 

O ' - 'T I- x » .N C TT C 



cc cq '■: J x .-? ™ .^ - I? c f 



K-hO 



Jfh ' 






tj- v.? .N.N.- 



++ 1 1 1 1 1 1 1 II I 



to •: sc m e a N 1 5 -" te c* c? 

h» r» X 00 ." v »' r - M o b 

1 1 II 1 1 1 II 1 1 1 



c^ — — tt « <C eo r- — — . w >n 



C .N >0 V- (C UQ 2 .-: — — r- «T 

TTi 

< 




a 



IQ W *0 >C SC ."S 3) C> »"> — • — < 
^ X d — ■*• CC M .N.-^^r 



I I I I I I I I | |+ + 



*b 



se g a * : | a je g | 



CHAPTER IV 

THE THEORY OK PROSPERITY CYCLES 

A. Entroduction 

Theories of prosperity cycles may be divided into two main 
classes: first, those which hold that prosperity and depression 
are due to economic relations growing out of the modern in- 
dustrial system of production and exchange, and second those 
which hold that these cycles are based on crop-yield cycles 
which are due in turn to cyclical fluctuations in temperature 
and rainfall. 

In this chapter will he treated those theories which find the 
causal factors of prosperity cycles within the industrial and 
business mechanism itself and not in meteorological phenom- 
ena. These theories may be classified under three main heads: 
(1) those that place the emphasis upon producers' goods; (2) 
those that place the emphasis upon consumers' goods; (3) 
those that place the emphasis on money, credit, prices and 
capitalization. 

Those theories which are concerned mainly or wholly with 
financial panics are here passed over entirely. They have in 
fact nothing to do with economic or industrial fluctuations 
proper. A financial panic is merely the seething foam of an 
industrial storm, and makes its appearance only in those coun- 
tries which have a totally inadequate banking system. A panic 
obtains when thoroughly sound business firms arc unable to 
get credit because of an inelastic system of currency and re- 
serves. Such a situation has not obtained for a generation 
in any advanced European country. 

The older and now obsolete theories of crisis arc also passed 
by. The two categories into which they generally fell are in- 
dicated by the two formulae in which their arguments were 
put — over-production and under-consumption. Several mod- 
ern theories may likewise be classed under these two general 



SO UNIVERSITY OP WISCONSIN STUDIES 

heads, but modern theories have analyzed over-production and 
under-consutnption with much greater detail and discrimina- 
tion. The one finds the causal factor of crises in the under- 
consumption of producers' goods, the other in the under-con- 
sutnption of consumers' goods. Only the newer formulations 
of the production and consumption theories will be dealt with 
here. 

We have then the following classification : 

A. Economic Theories. 

I. Those that emphasize Producers' Demand. 
II. Those that emphasize Consumers' Demand. 
III. Those that emphasize Money, Credit, Prices 
and Capitalization. 

B. Meteorological Theories. 

That modern economic theories of industrial fluctuations 
may be classed under three main heads may at first seem du- 
bious. Mitchell describes modern theories under the follow- 
ing numerous heads : Competition Theory, Discrepancy be- 
tween Wages and Productivity. Over-saving, Theory of Di- 
minishing Utility. Over-capitalization, Ill-balanced Production 
of Industrial Equipment and Complementary Goods, Changing 
Costs of Construction, Variations in Prospective Profits, Dis- 
crepancy between Prospective Profits and Current Capitaliza- 
tion. Uneven Expansion in the Production of Organic and In- 
organic Goods, Dissimilar Price Fluctuations of Producers' 
and Consumers' Goods. Theory of Lagging Adjustment of In- 
terest. Theory of Impair Savings. 1 But when we come to 
look at the matter closely we find that one group finds the key 
to the situation in the over-production and under-consumption 
of producers' goods, another finds it in the over-production 
and under-consumption of consumers' goods, while a third 
group finds it in money, credit, prices and capitalization. 

» Mitchell. Business Cycles, pp. 6-18. 



HANSEN CYCLES OF PROSPERITY AND DEPRESSION 81 



B. Economic Theories of Prosperity Cycles 

1. THEORIES EMPHASIZING producers' demand 

(a). Minnie T. England 2 

Mrs. England's theory places the emphasis definitely and 
entirely on the demand for producers' goods. Promotion is 
the cause of prosperity. Promotion implies the investment of 
social savings. When this investment is going on good times 
obtain ; when it slows up depression appears. It is not a ques- 
tion of the "under-consumption" of consumers. It is a ques- 
tion of the "under-consumption" of investors. Increased 
prosperity is merely an increased demand for goods, but the 
goods in question are not consumers' goods but producers' 
goods. This increased demand for capital goods causes in- 
creased prices in capital goods, which results in larger profits 
for their producers. Higher wages are paid in these indus- 
tries, more men are employed and there results an increased 
demand for consumers' goods. But this is a result and not 
a cause. 

Promotion is carried on largely with borrowed funds ob- 
tained chiefly from banks. Thus promotion results in an in- 
crease in bank loans and bank deposits. This expansion of 
credit results in the demand which produces the rise in prices 
mentioned above. Hence the sequence runs as follows : in- 
creased promotion, expansion of credit, rise in prices. The 
important point to notice in this theory is that the increased 
loans leading to higher prices are primarily due to the pur- 
chase and production of capital goods which results from pro- 
motion, and not due to the purchase of consumption goods. 
This conclusion is substantiated by the fact that the prices of 
producers' goods rise before a rise occurs in the prices of con- 
sumers' goods ; and also by the fact that the rise is higher for 
producers' goods. 



' M. T. England. "Fisher's Theory of Crises," Q. J. Econ., XXVII, 95- 
106; "Promotion as the Cause of Crises," Q. J. Econ., XXIX, 631-41; 
"Economic Crises," J. Pol. Econ., XXI, 345-54 ; "Analysis of the Crlnea 
Cycle," J. Pol. Econ., XXI, 712-34. 

6 



SL 1 UNIVERSITY OF WISCONSIN STUDIES 

Likewise when depression sets in the prices of producers' 
goods fall before the prices of consumers' goods, indicating 
that the check to prosperity is due to a falling off of promotion 
activity. Depression is brought on by the reverse of the forces 
which produced prosperity. Business failures occur which re- 
sult in a loss of confidence in further investment. The de- 
mand for capital goods falls off, credit is contracted, and prices 
fall. Forced economy in consumption results, but the reduced 
demand for consumption occurs as a result of the falling off 
in the demand for producers' goods. 

(b.) George H. Hull 3 

Hull offers the theory that prosperity and depression are 
nothing more or less than a variation in the amount of con- 
struction work. He holds that there are certain classes of 
goods that do not admit of any great fluctuations in demand. 
These are the necessities of life. Agriculture, commerce and 
finance are the departments of economic life that supply these 
necessities. In industry alone do we find a department of eco- 
nomic activity capable of sudden expansion or contraction. 
Three-fourths of industrial operations, it is claimed, consists 
of construction. Two-thirds of this construction consists of 
repairs, replacements and such extensions as are required by 
the steady growth of population. Therefore a large propor- 
tion of industrial operations are also incapable of any great 
extension or contraction. The other industrial operations are 
what Hull calls "extra" construction, or "investment" con- 
struction. Extra construction is undertaken only in a period 
of low prices when far-seeing investors enter upon a large 
amount of construction work. Others follow these leaders 
and the result is a great demand for iron and steel, lumber, 
cement, brick and stone. This creates a boom in the indus- 
tries producing these products. Labor and raw materials are 
demanded on a large scale, and neither can be secured to the 
required extent. The inevitable result is a rise in wages and 
the price of raw materials, and with that high prices for con- 



• George H. Hull, Industrial Depressions (New York, 1911). 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 83 

struction goods. Far-seeing industrial leaders now cease the 
extension of construction work. The demand for construc- 
tion material drops off. Laborers engaged on constructional 
enterprises suffer from unemployment and reduction in wages. 
Prices and wages fall until the low costs again make construc- 
tion work profitable, and a new era of prosperity follows. 

Prosperity then has nothing to do with the variation in the 
demand for consumers' goods. That remains relatively con- 
stant. But the waves of prosperity and depression are the re- 
sult of variations in the demand for construction work. 

(c). D. H. Robertson* 

Robertson in his Study of Industrial Fluctuations aims to 
present a complete statement of all the factors affecting pros- 
perity waves. He discusses these factors under the two head- 
ings of supply and demand. With regard to supply he dis- 
cusses the following points : ( 1 ) the influence of the time re- 
quired to construct instruments of production ; (2) the influ- 
ence of the length of life of the instruments of production; 

(3) the influence of fluctuations in the cost of construction; 

(4) the influence of invention. Under "demand" he discusses: 
(1) changes in demand due to fashions, tariffs and wars; (2) 
the influence of the volume of crops on the demand for rail- 
road equipment, shipping, constructional work, and iron and 
steel exports. Other points of less importance are also dis- 
cussed. 

Production begins to increase under one or more of the fol- 
lowing influences: (1) a general increase in the physical pro- 
ductivity of effort due to the adoption of improved methods 
under the stimulus of depression ; (2) an increase in the ex- 
change value of industrial products against the products of 
agriculture due to an increased bounty of nature; (3) an ex- 
pansion due either to an increase of confidence or an increased 
supply of gold or credit currency, which affords an additional 
bonus to business men because of the relative fixity of wages 
and interest rates ; (4) an increase in the expected future pro- 

* D. H. Robertson, Ktvttii of Industrial FUirtuntion* (London, 1915)- 
Study in Trade Fluctuations," J. R. 8., LXXVT, 159-78. 



84 UNIVERSITY OF WISCONSIN STUDIES 

ductivity of constructional goods due either to a wearing out 
of an exceptionally large number of existing instruments, or 
to the discovery of the industrial possibilities of a new coun- 
try or to some physical or legal invention. 

In the course of time the physical productivity of effort de- 
clines owing to the relapse into wasteful methods of produc- 
tion and to the operation of the law of increasing cost ; agri- 
cultural shortage turns the ratio of exchange against industrial 
products ; the monetary stimulus to increased production is re- 
versed by a depletion of gold reserves and an increase of in- 
terest and wages in accordance with the rising price level ; and 
a decline in the demand for construction goods occurs because 
of over-investment in these goods. 

Here are many points familiar to crisis theories. The con- 
tribution made by Robertson is his discussion of the influence 
of the time required to construct instruments of production, 
and the influence of the length of life of these instruments. 

The longer the time required to construct new instruments 
the greater will be the over-production of capital goods. An 
increased demand for certain producers' goods will make the 
production of these goods profitable because of their high 
price. But this high price will continue until the new batch 
of instruments is brought on the market. The longer the time 
required to bring this new batch on the market, the longer will 
be the period during which the production of these goods is 
stimulated, and the greater will be the quantity of capital goods 
finally produced. This discussion is borrowed largely from 
Aftalion, whose theory will be developed later. 

The influence of the length of life of the instruments of 
production is the distinctive contribution of Robertson. Dur- 
ing the rising price period a great quantity of industrial in- 
struments are produced. These wear out simultaneouslv pro- 
ducing an appreciable shortage. This leads to high prices and 
a fresh burst of investment. Thus once started the cvcles 
tend to be self-perpetuating. Meager statistics are presented 
in support of this theory. The longevity of iron rails, ships, 
cotton-spinning machinery, coal mines, etc., is considered. The 
facts do not seem to fit the theorv very successfully. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 85 

Robertson's theory is by no means clean cut. On the whole, 
however, he places the emphasis on the demand for producers' 
goods. Depression is caused by the cessation of demand for 
producers' goods resulting from an over-production of these 
goods due to the length of time required to construct them. 
Prosperity is caused by the increased demand for producers' 
goods growing out of the shortage due to the simultaneous 
wearing out of the instruments of production constructed in 
a previous period of prosperity. 

2. THEORIES EMPHASIZING CONSUMERS' DEMAND 

(a). Aftalion* 

Aftalion's explanation of crises places the emphasis on the 
demand for consumers' goods. Assume as a starting point an 
insufficient satisfaction of wants obtaining because of under- 
production of consumers' goods. This results in high prices 
for consumers' goods, and a great increase in productive ef- 
fort to supply more of these goods. But the great increase 
of production resulting fails to supply the wants of consumers 
or to weaken prices. The reason for this strange anomaly lies 
in the fact that the increased productive effort is not applied 
to the production of consumers' goods directly, but rather in- 
directly by a round about method which necessitates the pro- 
duction of capital goods before there can be an increase in 
consumers' goods. Until the new capital goods can be finished 
and put to work producing consumers' goods the demand for 
the latter remains unsatisfied. 

The fluctuations in the prices of consumers' goods give rise 
to still greater fluctuation in the prices of producers' goods. 
In fact a relatively small change in the demand for consumers' 
goods may produce a very large proportionate change in the 
demand for producers' goods. If for example 10 per cent of 
a certain commodity is produced by new equipment every year, 
an increase of 10 per cent in the demand for this commodity 
would result in an increase of 100 per cent in the demand for 
new equipment. Thus an increase in the demand for con- 



A. Aftallon. Lea crises periottiquea de surproduction ( Paris, 1913). 



86 UNIVERSITY OF WISCONSIN STUDIES 

sinners' goods stimulates a still greater increase in the produc- 
tion of fixed capital. But while this production is going on, 
consumers' goods are no more numerous than before, and there- 
fore the demand for consumers' goods persists which in turn 
induces the demand for producers' goods. These producers' 
goods are not immediately forthcoming. Statistics are pre- 
sented showing that the horse power of machinery in various 
industries does not increase notably until a considerable time 
after the beginning of a boom period. It is only when the 
new instruments of production begin to pour out consumers' 
goods that the consumers' demand becomes satisfied and prices 
begin to drop. That affects the value of producers' goods, 
the demand for new construction falls, and prosperity wanes. 

Thus the demand for both consumers' and producers' goods 
is prolonged by the fact that it requires a considerable length 
of time before the new instruments of production can be com- 
pleted. And not only is prosperity prolonged by the long time 
required to produce new capital goods, but depression as well 
is prolonged by the same fact. Instruments already in process 
of production must be completed. Therefore the production 
of fixed capital continues even after the crisis period. Aftalion 
presents statistics to show that the horse power of machinery 
in various industries continues to increase from one to three 
years after the break in prices. Thus the curve of the pro- 
duction of capital goods lags behind the curve of general pro- 
duction and general prices one to three years. 

But this overly large supply of industrial equipment con- 
tinuing to be poured on the market for a considerable time 
after the drop in prices, must be put to use in order to get 
something out of it. Hence consumers' goods are poured out 
in greater and greater quantities, and depression is prolonged 
and aggravated. This state of affairs continues until the time 
has arrived when the demand for consumers' goods has again 
outstripped the industrial equipment. Then the rise in the 
prices of consumers' goods stimulates a new demand for pro- 
ducers' goods and another period of prosperity is launched. 

It is therefore the fluctuation in the prices of consumers' 
goods which is at the bottom of economic cycles. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 87 

(b). Carver 6 

Professor Carver's theory resembles Aftalion's in many re- 
spects. He holds that a small increased difference between 
selling prices and expenses results in a large increase in profits. 
This large increase in profits results in a much higher capital- 
ized value of the industrial equipment. The industrial equip- 
ment produces finished products which are either consumers' 
goods or at least much farther forward in the march toward 
consumers' goods than is the industrial equipment. A rela- 
tively small increase in the value of the finished product re- 
sults in a much greater increase in the value of the fixed cap- 
ital. This means that the value of producers' goods tends to 
fluctuate much more violently than the value of consumers' 
goods. 

The enhanced value of the producers' goods due to larger 
profits stimulates the production of producers' goods much 
more than of consumers' goods since the value of the latter 
does not rise nearly as much proportionally. Less energy is 
therefore devoted to the production of consumers' goods. They 
become relatively scarcer and a still greater rise in prices re- 
sults. That in turn leads to still larger profits and higher 
capitalized value of producers' goods. This condition of af- 
fairs continues to obtain until the new stock of producers' 
goods begins to pour out consumers' goods. Then prices drop, 
profits fall more than prices, and the value of producers' goods 
declines in proportion to the decline in profits. The produc- 
tion of capital goods is then checked and depression appears. 

Here, as in Aftalion's theory, prosperity and depression 
grow out of fluctuations in the prices of consumers' goods. 

(c). Hobsori 1 

Hobson's theory is a modification and improvement of the 
socialistic theory of under-consumption. He believes that the 
fundamental cause of crises may be found in the existence of 
surplus incomes. Wealthy people with very large incomes are 



• T. N. Carvpr. "A Suarg-estton for a Theory of Industrial Depressions," 
Q. J. of Econ. (May. 1903), pp. 497-500. 

'J. A. Hobson. The Industrial System (London, 1909). 



88 UNIVERSITY OF WISCONSIN STUDIES 

unwilling to consume it all by themselves. They desire to in- 
vest a considerable share of their incomes in producers' goods 
in order to increase their fortunes. These producers' goods 
necessarily emerge ultimately in the form of consumers' goods. 
The masses of the people with their limited incomes are un- 
able to purchase all these consumers' goods. The inevitable 
result is a congested market, which leads to lower prices, less 
profits, and smaller incomes for the very rich. These reduced 
incomes force the wealthy classes to spend a greater propor- 
tion of their incomes and less is invested in capital goods. 
Thus consumption is given a chance to catch up with the ca- 
pacity of the industrial equipment, surplus goods are worked 
off, and prices again rise. With the return of higher prices, 
profits are increased, incomes are greater, a larger and larger 
proportion of the surplus incomes are invested in capital 
goods, which are used in the production of consumers' goods. 
Thus production again outruns consumption. 

This argument obviously disposes effectively of Mill's an- 
swer to the theory of under-consumption. Mill claimed that 
there could be no such thing as over-production because the 
doubling of the supply of commodities in every market would 
by the same stroke double the purchasing power. The means 
of purchase would always be present. Hobson does not deny 
that the means of purchase is present but he denies that the 
recipients of surplus incomes would ever be willing to spend 
enough of their income to prevent the over-production of con- 
sumers' goods. No matter how much production is directed 
toward the things that would appeal to the rich, even their 
ostentatious wants are so amply provided for that always will 
they desire in periods of prosperity to invest too large a pro- 
portion of their incomes in further production. Since they 
themselves are unwilling to spend the proper proportion of 
their incomes on consumers' goods, this investment must neces- 
sarily result in the production of goods intended for the masses. 
Because of the limited incomes of the masses this leads to the 
over-production of consumers' goods. 

Thus there is a reserve of capital just as there is also a re- 
serve of labor. Surplus incomes cause the incessant attempt 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 89 

to employ capital in excess of the demand of the ultimate con- 
sumer. 

One of two things must be done. Either the rich will have 
to abandon their excess investments and resort to greater 
spending, or else surplus incomes must somehow be reduced 
and greater equality of incomes attained. This would raise 
the standard of spending and thus limit saving. This end may 
be accomplished by the taxation of large incomes, by raising 
wages, and shortening the working day. These measures 
would result in greater purchasing power on the part of the 
masses and a balance would result between demand and supply. 

3. THEORIES EMPHASIZING MONEY, CREDIT, PRICES AND 
CAPITALIZATION 

(a). Mitchell* 

Mitchell finds the persistent and recurring causes of busi- 
ness cycles in the fact that the industrial process of making 
and the commercial process of distributing goods are thorough- 
ly subordinated to tne business process of making money. In- 
dustry expands actively when business men find the prospect 
of profit-making good, and contracts when the money-making 
outlook is discouraging. It is the changes in business men's 
demand with which Mitchell is chiefly concerned. It may 
therefore be said that he also emphasizes the demand for pro- 
ducers' goods. But the important thing is his analysis of the 
origin of this demand. That is found in the profit margin ; 
in the spread between selling prices and costs. 

Profits are made on the margins between buying prices and 
selling prices on the one hand and the volume of transactions 
on the other. 9 The margin between the prices at which goods 
are bought and sold is the more fundamental of the two, and 
"forms a tolerable business basis for making profits. . . . " 10 
Industrial activity is guided by the prospect of profits, and the 
prospect of profits depends on price-margins. 



•W. C. Mitchell, Business Cycles (Berkeley, 1913). 
'Ibid., p. 26. 
10 Ibid., p. 27. 



90 UNIVERSITY OF WISCONSIN STUDIES 

A brief description of the different phases of the business 
cycle will indicate more clearly Mitchell's analysis. He begins 
with a description of the trough of the wave when a revival 
of prosperity is beginning to cumulate. Low selling prices, 
low costs, a narrow margin of profits, large bank reserves, low 
capitalization, conservatism in granting credits, moderate stocks 
of goods, and cautious buying obtain. Then expansion begins 
for some reason or other ; it may be good harvests, heavy pur- 
chases by the government or an increase in the demand for ex- 
ports. Expansion spreads to other fields because of the inter- 
related interdependence of the modern industrial society. Sell- 
ing prices rise. Costs in the form of wages, interest rates and 
rents lag behind ; raw material alone of buying prices rises 
higher than selling prices. The increased margin between 
costs or buying prices and selling prices as well as the greater 
physical volume of sales leads to larger profits. This increase 
in profits leads to an expansion of investments, heavy orders 
for new machinery, large contracts for new construction. Busi- 
ness is booming. 

But stresses soon begin to accumulate within the business 
system. Costs begin to increase. Higher money wages are 
paid with extra pay for overtime. Efficiency of labor declines 
because of weariness due to overtime, the employment of un- 
desirables, and the slowing up of work due to the knowledge 
on the part of the worker that jobs are numerous. Old leases 
expire, and new ones are made under less favorable terms. 
Interest rates rise because of the increased demand for loans 
and the depletion of cash reserves. Trade outstrips its ca- 
pacity, and antiquated equipment and poorly located plants are 
brought into operation. The price of raw materials gains on 
the price of the finished products. Selling prices cannot rise 
indefinitely in all industries ; in the public utility field rates 
are fixed by commissions ; organic prices depend on harvests ; 
production in some lines exceeds demand because of mistaken 
investment and this group widens and affects all the rest with 
a resulting decline in prices. 

Two effects result from the foregoing: first, the price-margin 
is narrowed by the rising costs and the falling off in the rise 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 91 

of selling prices ; second, the demand for industrial equipment 
is affected by the stringent condition of the money market and 
the high cost of construction. Orders for steel mills, foun- 
dries, machine factories, copper smelters, quarries, lumber 
mills, cement plants, raw material, and supplies are cut off, and 
thus the volume of trade in producers' goods is diminished. 
This narrowing of the price-margin and the reduction in the 
volume of trade reduce profits. 

The declining profits lessen the security of outstanding cred- 
its. Capitalization is scaled down both because of lower prof- 
its and also because of higher interest rates which affect the 
rate of capitalization. Inadequate security results in refusal 
to renew old loans. Settlement of old accounts is pressed and 
liquidation of huge credits results. Bankruptcy of large con- 
cerns ensues. Banks are hard pressed. An effort is made to 
replete reserves by the importations of gold, the increase of 
note circulation and the issue of clearing-house certificates. 
Stock and bond prices fall to an extremely low level. Busi- 
ness contracts, and workmen are discharged. 

Depression is now in full swing. Workmen are unemployed, 
past savings are exhausted, all classes of incomes are reduced, 
and hence the consumers' demand for goods falls off. Prices 
drop owing to keener competition to make sales, and every re- 
duction in price facilitates reduction in other prices. 

Finally costs are reduced to a low level. Poorly located and 
ill-equipped plants are no longer used. The efficiency of labor 
is increased by the discharge of the poorer grade of workers 
and the fear of unemployment on the part of those retained. 
The price of raw material drops. Rentals are reduced. Loans 
are refunded at lower interest rates. Bank loans are readily 
obtainable. With closer economy on the part of managers 
and lower capitalization, earnings gradually become more sat- 
isfactory. The demand for goods returns with the exhaustion 
of the accumulated stocks, the constant growth of population 
and the development of new tastes and products. Low inter- 
est rates encourage borrowing and the investment in industrial 
equipment returns. Thus the price-margin is again widened, 



92 UNIVERSITY OF WISCONSIN STUDIES 

the volume of trade is increased, profits grow and prosperity 
returns. 

(b). Veblen 11 

Mitchell's theory corresponds in many respects to Veblen's 
theory. Veblen finds that modern industry is guided by busi- 
ness principles. Under the old order industry was a quest 
for a livelihood ; under the new order industry is directed by 
the quest for profits. Formerly times were rated as good or 
bad according as the industrial processes yielded a sufficient 
output of the means of life ; now, good or bad times depend 
on the rate of business profit. The controlling end at present 
is pecuniary considerations and not abundance of satisfying 
goods. 

In modern times therefore the potent factor which serves 
as an incentive to the acceleration of business is a rise in prices. 
This rise in prices may be due to an increased demand growing 
out of governmental expenditures for war or preparations for 
war; or it may be due to an increased supply of the precious 
metals, an inflation of the currency, or a larger use of credit 
instruments as subsidiary currency. Money and prices, far 
from being negligible factors, as frequently stated by those 
who consider crises as the phenomena only of production and 
consumption, are in fact the primary factors. It is all a ques- 
tion of prices, business profits and capitalization. 

Thus an era of prosperity is an era of increased earnings 
growing out of rising prices. These increased earnings con- 
sist of a differential gain in the increased selling price of the 
output over the expenses of production. When this differen- 
tial advantage ceases the era of prosperity is on the wane. 

This differential gain arises mainly from two causes. In 
the first place, certain outlying industries are not affected ap- 
preciably by the upward movement and the supplies drawn 
from these industries do not rise in price to any considerable 
extent. In the second place, wages advance slowly during an 
era of prosperity. The latter is the chief and most secure 
differential advantage. 



11 T. B. Veblen. Theory of Business Enterprise (New York. 1904). 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 93 

These increased earnings or expected earnings lead to a 
higher market capitalization of industrial equipment. This 
higher capitalized market value increases the value of the prop- 
erty as collateral. Increased borrowing may take place on the 
basis of this higher value. Or contracts for the purchase of 
supplies may be entered into which are in effect an extension 
of credit. Thus the heightened market capitalization becomes 
the basis of a greatly extended credit either in the way of 
orders or formal loans. 

But this period of increased earnings upon which the higher 
market capitalization is based finally comes to a close. The 
differential advantage mentioned above terminates because the 
necessary expenses of production presently overtake or nearly 
overtake the selling price of the output. "Increasing wages 
cut away the surest ground of that differential price advan- 
tage on which an era of prosperity runs." 12 The rate of earn- 
ings then falls off, the enhanced market capitalization proves 
to be too great for present earnings, the collateral consequently 
shrinks to a point where it will not support the credit exten- 
sion resting on it in the form of outstanding contracts and 
loans. Loans are called or additional collateral is demanded, 
and liquidation ensues. Because of the interrelation of cred- 
itors and debtors such a movement once started has far-reach- 
ing effects. 

Depression as well as prosperity is a product of pecuniary 
considerations. The pecuniary exigencies of the situation in- 
hibit industrial activity. Depression means that business men 
do not derive a satisfactory gain from letting industrial activ- 
ity continue at full capacity. There is an excess of the means 
of producing goods above what is expedient on pecuniary 
grounds. There is under-production in the sense that the sup- 
ply of goods which finds its way into the hands of consumers 
is too scant for comfort, but there is over-production in the 
sense that there is more of an output offered than can be car- 
ried off at a fair price and an ordinary profit. It is a question 
of "fair prices" and "reasonable profits." 

15 Ibid., p. 212. 



94 UNIVERSITY OF WISCONSIN STUDIES 

A reasonable profit means a satisfactory return on the cap- 
italized value of the enterprise. But a discrepancy arises be- 
tween the high capitalization based on former high earnings 
or anticipated earnings and the present diminished earnings. 
Not only is the capitalization too high for present earning ca- 
pacity, but it is also too high to fit the lowered cost of indus- 
trial equipment. Thus the capitalization is too high both 
from the standpoint of cost and earning-power. But interest 
bearing securities cannot be reduced except by reorganization, 
and other forms of capitalized wealth are reduced or scaled 
down with extreme reluctance. Some concerns are forced 
into bankruptcy, and are reorganized and capitalized on the 
basis of the reduced earnings. New competing concerns are 
coming in with plants built at lower cost, and fixed charges 
carrying lower rates of interest. These unemcumbered com- 
petitors are making "reasonable profits" at current prices be- 
cause their capitalization is based on lower cost and present 
earning-capacity. Their competition precludes an advance in 
prices to a point which would afford a "reasonable profit" to 
the other establishments paying interest and dividends on over- 
capitalized property. 

Veblen advances the novel theory that under the fully de- 
veloped regime of the machine industry chronic depression 
tends to become normal. Under fully developed machine pro- 
duction a persistent divergence arises between the past cost of 
production of a given equipment and the current cost of an 
equivalent equipment at a subsequent date. This discrepancy 
results from the gradual but uninterrupted progressive im- 
provements of industrial processes. This discrepancy requires 
a progressive readjustment of capitalization to correspond with 
the continuously decreasing cost and lowered earning power. 
Therefore a "fair" rate of profit is not permanently attainable 
on the basis of the old capitalization. Depression is therefore 
the normal situation. 

But this state of affairs did not obtain during the early part 
of the nineteenth century. Not until about the decade of the 
seventies did the efficiency of the machine industry in the pro- 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 95 

duction of capital goods become so great that the cost of their 
production was lowered too rapidly to permit the progressive 
reduction of capitalization to keep pace with it. In other words 
up to the period of the seventies the shrinkage of capitalization 
following a crisis would be sufficient to maintain an appreciable 
under-capitalization for a considerable length of time before 
reduced cost of capital goods would again leave the capitali- 
zation too high. This period of under-capitalization would 
permit of "reasonable" profits and prosperity. But since the 
seventies the machine industry has become so efficient and the 
cost of producers' goods has been lowered so rapidly that any 
under-capitalization which might follow a crisis would quickly 
disappear without allowing time for recovery and boom. Hence 
depression is normal to the modern industrial situation. 

(c). Fisher 13 

Fisher's theory places still greater emphasis on the monetary 
and credit aspects. Assume as a starting point a slight initial 
disturbance such as an increase in the quantity of money. This 
results in a rise in prices. The profits of business men increase 
greatly because, while prices rise, expenses such as interest on 
past loans, rent, wages, and salaries remain unaffected or are 
little affected. Larger profits encourage business men to ex- 
pand their businesses by increased borrowings. These borrow- 
ings are mostly in the form of short time loans from banks. 
Such loans engender deposits, and deposit currency is there- 
fore increased. Thus in spite of greater activity in trade and 
increased production prices continue to rise because of the ex- 
pansion of deposit currency. 

The period of prosperity obtains as long as enterprisers' 
profits continue abnormally high. But these profits are finally 
cut into from both sides. Interest rates, rent, wages and sal- 
aries ultimately rise, and costs are greatly increased. On the 
other hand prices are checked by the fact that deposit currency 
is contracted through the refusal of banks to extend loans ex- 
cept on hard terms if at all. Banks are compelled to dis- 



15 Irving Fisher. The Purchasing Power of Money (New York. 1011); 
Why i« the Dollar Shrinking* (New York, 1914). 



96 UNIVERSITY OF WISCONSIN STUDIES 

courage loans because they cannot permit a too abnormal ex- 
pansion of loans relatively to reserves. Loans thus cease to 
expand and prices are checked on the one side while costs 
mount up on the other and profits are reduced. Bankruptcies 
and business failures ensue. Enterprises which were started 
by borrowing expect to be continued by renewed borrowing. 
When borrowing becomes more and more difficult insolvency 
necessarily follows. These bankruptcies tend to spread be- 
cause the creditors of the insolvent firms necessarily are af- 
fected. Contracted loans, low prices, high costs, and small 
profits continue and depression rules. 

This contraction becomes self-limiting, as soon as loans are 
easier to get. When reserves accumulate banks are led to make 
loans on easy terms. Borrowers again become willing to take 
ventures, loans are again demanded, prices begin to rise, bus- 
iness becomes profitable, and there occurs a repetition of the 
upward movement. 

C. Criticism of Theories 

The vital point of conflict between the first two classes of 
theories discussed is found in the insistence on the part of 
one group that the trouble which results in crises begins with 
a lessening of demand on the part of the consumers, while on 
the other side it is claimed that the initial diminution of de- 
mand is on the part of business men for producers' goods. 
This conflict leads us to a comparison of the fluctuations of 
the prices of consumers' goods and producers' goods. 

The available monthly data is for the United States and 
Germany. For the United States the relative prices of con- 
sumers' goods were obtained by averaging the monthly relative 
prices of food, clothing and house furnishings as given by 
the Bureau of Labor Statistics. 14 The relative prices for 
producers' goods were obtained by averaging the monthly rel- 
ative prices of metals and implements, lumber and building 
material. These relative numbers were in turn reduced to 
the monthly bases used throughout this discussion. The rel- 



14 U. S. Department of Labor Bulletin. 1912, pp. 520-23. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 97 

CHART 11: PRICES. UNITED STATES 
130 




1902 1903 1904 1905 1906 1907 190& 



ative prices of producers' and consumers' goods for Germany 
were calculated from original data by the writer. 15 The price 

15 Vierteljahrsheften, 1902-1909. Sixteen commodities are included in the 
producers' goods series, as follows : Haute und Pelle, Wolle, Baumwolle, 
Baumwollengarn, Leinengarn, Rohseide, Hauf, Mexikaneskhe Paser, 
Rohjute, Eisen, Blei, Kupper, Zink, Zinn, Steinkohlen, Petroleum. The 
method used in computing the index numbers is similar to that used by 
Bradstreet. Bradstreet simply added together the prices per pound of 
the various articles used. The method here used was to add together the 
prices per 100 kg. of most of the commodities named but in some cases a 
different unit w r as used. Thus for Rohseide the prices of 1 kg. were used, 
and for Eisen and Steinkohlen the prices of 1,000 kg. were used. The sum- 
mations thus obtained were reduced to index numbers with the monthly 
averages used as bases. 

Fourteen commodities are used in the consumers' goods series as fol- 
lows : Kartoffeln, Rindvieh, Schweine, Kalber, Hammel, Roggenmehl, 
Weizenmehl, Butter, Zucker, Rubol, Kaffee, Tee, Pfeffer, Schmatz. The 
prices were summated as before. One hundred kg. was used as the unit 
in most cases with the following exceptions: Kartoffeln 1,000 kg., Rog- 
genmehl 1,000 kg., Weizenmehl 1,000 kg. Index numbers were computed 
by dividing the monthly averages into each of the foregoing summations. 



98 



UNIVERSITY OF WISCONSIN STUDIES 



fluctuations of the two groups for the United States are 
given in Chart 11, and for Germany in Chart 12. The relative 
numbers are given in Table XL 

From the charts and table the following facts become evi- 
dent : (1) In both countries the prices of consumers' goods 



130 



120 



110 



100 



90 



80 



70 



CHART 12: PRICES, GERMAHY 





PRODUCERS* GOODS 








































\"- 




♦ 






•y 




\ °\ 


,-,,.., 


71 










s 


' *•• 














vw 





























1902 1903 1904 1905 1906 1907 1908 



begin to decline about seven months after the decline in the 
prices of producers' goods. (2) In both countries the prices 
of producers' goods fluctuate more violently than the prices of 
consumers' goods. In Germany producers' goods fluctuate 150 
per cent more than do consumers' goods, while in the United 
States the fluctuation is 100 per cent greater. (3) The prices 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 99 

of both consumers' and producers' goods fluctuate more widely 
in Germany than in the United States. The fluctuation of 
consumers' goods is 25 per cent greater, and 50 per cent 
greater for producers' goods. 

These facts would then seem to prove conclusively that 
the initial disturbance arises in a diminution in the demand 
for producers' goods. 

It has been suggested however by both Aftalion and J. M. 
Clark 16 that the apparent conclusion is exactly the opposite 
of the truth. The change in the demand for consumers' goods 
is in reality the cause of the change in the demand for pro- 
ducers' goods even though the maximum and minimum points 
of the latter precede the maximum and minimum points of 
the former. The reason for this may be indicated by distin- 
guishing between a change in absolute demand, and a change 
in the rate of increase in demand. There are two distinct de- 
mands for producers' goods : first, the demand for the main- 
tenance and replacement of existing capital goods ; second, the 
demand for new construction. The firstViemand depends upon 
the life of producers' goods, or the rate of depreciation, and the 
amount of consumers' goods continually needed. The second 
demand depends upon the increase in the demand for consum- 
ers' goods. Suppose 10 per cent of the existing capital goods 
has to be replaced every year, and suppose the increase in 
demand is so great that an additional 10 per cent of the present 
supply of producers' goods must be forthcoming in order to 
meet the increased demand. Then the equipment for the pro- 
duction of capital goods must be large enough to supply 20 per 
cent of the existing capital each year. Now any lessening in 
the rate of increase in demand for consumers' goods would re- 
sult in an absolute diminution in the demand for producers' 
goods. Suppose the increased demand for consumers' goods 
•is reduced to a point which will require only an additional 8 
per cent of capital goods over and above replacement. Then 
the total demand for producers' goods is reduced from 20 per 
cent of the existing equipment to 18 per cent, an absolute de- 



16 J. M. Clark, "Business Acceleration and the Law of Demand: A Tech- 
nical Factor in Economic Cycles," J. of Pol. Econ., XXIV, 217-35. 



100 



UNIVERSITY OF WISCONSIN STUDIES 



TABLE XI— INDEX NUMBERS OF WHOLESALE PRICES OF 

PRODUCERS' AND CONSUMERS' GOODS IN THE 

U. S. AND GERMANY 







Producers' 


Consumers' 


Producers' 


Consumers' 






Goods — 


Goods — 


Goods — 


Goods — 






U.S. 


U.S. 


Ger. 


Ger. 




January . . . 


88.8 


95.9 


81.1 


94.7 




February . . 


88.8 


95.9 


82.5 


94.9 




March. . . . 


89.8 


96.1 


82.7 


96.6 






90.6 


96.1 


84.1 


96.6 






93.3 


97.4 


85.2 


96.9 


1902 


June 


94.2 


96.4 


85.5 


96.6 




July 


94.2 


96.3 


84.9 


95.4 




August .... 


95.1 


95.8 


84.3 


96.7 




Sept 


95.0 


95.3 


85.0 


96.4 




October. . . 


94.6 


96.3 


84.4 


96.4 




November . 


94.5 


96.0 


83.7 


96.1 




December . 


94.0 


96.1 


83.7 


94.9 




January . . . 


95.7 


97.1 


87.9 


95.4 




February . . 


95.6 


96.8 


90.1 


95.1 




March .... 


96.4 


97.5 


91.9 


95.7 




April 


95.6 


97.2 


92.2 


96.4 




May 


94.1 


96.4 


92.7 


94.7 


1903 


June 


93.8 


96.9 


93.1 


94.4 




July 


93.5 


96.5 


93.2 


93 2 




August .... 


92.8 


96.2 


94.1 


93.7 




September 


92.4 


96.9 


93.3 


93.3 




October . . . 


92.8 


95.8 


92.4 


93.3 




November . 


91.6 


95.8 


93.0 


93.2 




December . 


90.9 


95.6 


95.9 


92.6 




January . . . 


92.5 


97.0 


100.6 


92.8 




February . . 


92.0 


98.0 


98.6 


95.2 




March 


91.6 


98.0 


98.5 


95.6 




April 


91.8 


97.9 


98.1 


94.1 




May 


91.6 


97.7 


95.2 


92.7 


1904 


June 


91.5 


97.7 


92.4 


93.2 




July 


91.3 


96.9 


91.6 


96.2 




August .... 


90.9 


97.1 


91.9 


95.4 




September 


90.7 


97.1 


93.3 


95.6 




October . . . 


89.7 


96.5 


92.8 


95.8 




November . 


90.3 


96.7 


93.4 


96.1 




December . 


91.5 


96.8 


91.7 


97.0 




January . . . 


93.8 


97.7 


92.2 


98.2 




February . . 


95.3 


97.7 


91.9 


98.5 




March .... 


95.7 


96.9 


92.0 


96.1 




April 


96.1 


96.9 


92.3 


98.9 




May 


96.5 


96.2 


92.0 


98.4 


1905 


June 


98.3 


96.0 


94.8 


99.3 




July 


97.6 


96.6 


98.6 


99.1 




August .... 


99.6 


97.6 


100.3 


100.6 




September 


100.0 


98.1 


100.4 


99.4 




October . . . 


100.8 


97.9 


101.1 


100.1 




November . 


102.0 


98.1 


103.2 


101.5 




December . 


102.4 


98.3 


105.1 


102.0 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 101 
TABLE XI— Continued 



Producers' 
Goods — 

U.S. 



Consumers' 
Goods — 

U.S. 



Producers' 

Goods — 

Ger. 



Consumers' 

Goods — 

Ger. 



January . 
February 
March. 
April . . . 
May.. . 
June . . . 
July . . . 
August . 
September 
October. . 
November 
December 

January . 
February 
March . 
April. . 
May.. . 
June . . . 
July... 
August 
September 
October. . 
November 
December 

January . 
February 
March . . 

April 

May 

June .... 

July 

August . . 
September 
October. . 
November 
December 

January . 
February 
March . 
April . . . 
May.. . 
June . . . 
July . . . 
August . 
September 
October. . 
November 
December 



106.0 
106.4 
106.6 
105.9 
106.6 
106.5 
107.7 
107.1 
108.1 
110.3 
111.9 
113.8 

117.1 
117 
117.2 
117.2 
117.0 
116.3 
116.2 
114.5 
113.7 
111.1 
109.2 
104.6 

106.1 

104.4 

102.7 

102.5 

100.6 

99.0 

99.2 

99.8 

100.0 

100.4 

100.7 

102.6 

125.4 
126.7 
127.1 
127.6 
128.8 
128.1 
127.4 
127.4 
127 2 
127.0 
127.6 
127.5 



100.6 
100.5 
100.4 
100.6 
100.8 
101.2 
102.3 
102.4 
101.7 
101.7 
103.1 
103.6 

104.9 
105.4 
105.8 
105.6 
106.4 
107.5 
107.8 
108.1 
108.4 
109.6 
108.6 
107.3 

106.8 
105.7 
105.4 
105.7 
105.2 
104.3 
103.8 
102.7 
102.6 
102.4 
101.6 
102.1 

112.8 
112.9 
112.9 
112.5 
111.8 
111.8 
112.0 
112.2 
112.8 
113.3 
113.9 
114.3 



107.2 
106.4 
106.3 
109.0 
112.2 
112.3 
111.6 
112.1 
113.4 
119.3 
119.8 
120.9 

122.4 
123.0 
123.2 
123.3 
124.0 
123.8 
123.2 
120.3 
118.9 
114.6 
111.6 
107.9 

108.4 

107.3 

105.5 

100.9 

98.7 

98.4 

96.9 

97.2 

95.6 

95.1 

95.1 

94.8 

1,795 
1,800 
1,811 
1,810 
1.822 
1,820 
1,818 
1.816 
1,804 
1,805 
1.814 
1.824 



103.7 
104.0 
103.8 
103.2 
101.5 
102.2 
103.7 
102.7 
103.9 
103.9 
103.5 
103.8 

105.2 
105.0 
105.5 
105.3 
109.1 
108.6 
106.8 
108.2 
108.3 
109.1 
108.4 
108.9 

109.9 
107.5 
106.6 
105.8 
106.5 
105.4 
105.7 
102.8 
102.9 
101.5 
101.1 
100.4 

1,743 
1.740 
1,722 
1,718 
1.720 
1,714 
1,746 
1,777 
1,793 
1,810 
1,806 
1,776 



102 UNIVERSITY OF WISCONSIN STUDIES 

crease. Thus part of the equipment prepared to produce cap- 
ital goods must remain idle. The demand for consumers' 
goods is still increasing but the rate of increase is less than 
before. A reduction in the rate of increase in the demand for 
consumers' goods produces an actual decrease in the demand 
for producers' goods. Thus while the curve of demand for 
consumers' goods is still rising, though at a diminished rate, 
the curve of demand for producers' goods is actually falling. 
The change in the demand for consumers' goods is the causal 
factor, but the fact that the curve for producers' goods falls 
while the curve for consumers' goods is still rising gives the 
false impression that the initial trouble begins with the demand 
for producers' goods. 

Is there then any evidence to show that the prices of pro- 
ducers' goods fall because of a diminution in the rate of in- 
crease in the prices of consumers' goods? 

The index numbers given above indicate that there is not 
any such evidence. The high point in the prices of producers' 
goods is reached in April, 1907, in the United States, and in 
May, 1907, in Germany. If the theory just referred to were 
true, the rate of increase in the prices of consumers' goods 
should show a decline before this point is reached. No such 
decline is indicated. On the contrary the prices of consumers' 
goods continue to rise in a remarkably even course until Octo- 
ber, 1907, in the United States, and until January, 1908, in 
Germany. The following table gives the average monthly 
rate of increase in the prices of consumers' goods in each 
country by periods of five months. 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 103 



United States 


Germany 




Period 


Average 

Rate 

of 

Increase 


Period 


Average 

Rate 

of 

Increase 


March-^July, 1906 
August-Dec, 1906 
January-May, 1907 

June-October, 1907 


Pet. 
0.4 

0.3 

0.5 

0.6 


June-October, 1906 

November, 1906 ? 
March, 1907 J 

April-August, 1907— 

September, 1907 \ 
January, 1908 j 


Pet. 
0.5 

0.3 

0.5 
0.3 



There clearly is no evidence of any decline in the rate of 
increase in the prices of consumers' goods. In fact, so far 
as the United States is concerned, the rate of increase appears 
if anything to increase after the fall in the prices of producers' 
goods. It may also be profitable in this connection to examine 
the curves given in Charts 11 and 12. So far as the evidence 
goes it does not appear that the prices of producers' goods fall 
because of any decline in the rate of increase in the prices of 
consumers' goods. In short, the theories emphasizing con- 
sumers' demand do not appear to harmonize with the statisti- 
cal facts. 

Aside from the question as to whether the initiatory demand 
begins with consumers' goods or producers' goods, is the ques- 
tion as to the fundamental nature and cause of increasing and 
decreasing demand. It is the contention of the third group of 
theories discussed that the real basis of demand cannot be 
found in questions relating to production and consumption 
alone, but must in the modern business economy be sought 
in price margins and capitalization, in monetary and credit 
phenomena. 



104 UNIVERSITY OF WISCONSIN STUDIES 

D. Conclusions from the Study of Monthly Data 

The writer believes that the conclusions derived from this 
study of monthly data bring support on the whole to the third 
group of theories. 

Demand is based on purchasing power. The source of pur- 
chasing power is income, and the source of income is the pro- 
duction of material goods and services. Production gives 
rise to income, income means purchasing power, purchasing 
power is the basis of demand, and demand in turn regulates 
production. In short goods and services are exchanged against 
goods and services. On this basis one would expect produc- 
tion to run an even course, and not to run in cycles. And in- 
deed in the barter economy there were no business cycles. But 
modern purchasing power functions largely through bank 
credit. We shall now consider the phenomenon of bank credit 
and its effect on purchasing power. 

The nominal purchasing power obtaining in any society at 
any given moment may be measured substantially by the 
amount of money in hand to hand circulation and the volume 
of bank credit in the form of deposit currency. Doubtless 
it exceeds the above somewhat because individuals, firms, cor- 
porations and governmental units are able to make use to a cer- 
tain extent of their personal credit directly without exchang- 
ing it for bank credit. Thus purchases may be made against 
personal notes, secured or unsecured, and time drafts or bills 
payable, without the purchaser making use for the time being 
of money or bank credit. Such personal credit, however, is 
ordinarily converted into bank credit sooner or later. The per- 
sonal notes or time drafts received against sales may be dis- 
counted at a bank, and the individual or firm heavily loaded 
with bills receivable will probably be compelled to borrow on 
its own notes at some bank. 

In one sense it might be argued that the total purchasing 
power of a nation is equivalent to its total wealth. But as an 
actual fact this is untrue. The extent to which wealth repre- 
sents purchasing power depends on the extent to which it can 
be used against purchases, or the degree of its acceptability as a 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 105 

means of payment. In as far as barter is an unacceptable 
economy, just so far most forms of wealth become utterly 
useless as means of payment against purchases. Money is the 
only form of wealth which is generally acceptable. AH other 
forms of wealth have varying degrees of acceptability rang- 
ing all the way from coupon government bonds to real estate. 
These forms of wealth can be said to have real purchasing 
power only in so far as they may be converted into bank credit. 
Only that portion of the wealth of a nation which has been or 
can readily be hypothecated at a bank and converted into bank 
credit in the form of bank deposits or bank notes may be said 
to have effective purchasing power. 

Now it is impossible for all the wealth of a nation to be thus 
converted into purchasing power at once, because banks are 
limited in the extent to which they may extend their credit by 
the supply of their reserves. These reserves in turn are de- 
pendent in volume largely upon the quantity of lawful money 
in the given country, and ultimately in the world. But a more 
fundamental reason lies in the fact that a definite relation must 
always exist between the money value of a nation's wealth 
and its supply of money and bank credit. A nation could never 
have a supply of circulating media equal to the money value 
of its property because with every increase in the supply of 
circulating media the value of property would rise. Actual 
purchasing power, therefore, in the form of bank credit could 
never overtake the nation's wealth for two reasons : first, be- 
cause the volume of bank credit is restricted by law or bank- 
ing prudence to a certain proportion of the money available 
for reserves ; and second, because property values would them- 
selves be inflated by any increase which might occur in bank 
credit. 

Personal credit measured in terms of the total wealth can 
therefore never all be converted into bank credit or ready 
purchasing power. According to Fisher's estimate the wealth 
of the United States is normally about twenty times the aver- 
age amount of deposit currency. Up to the time of the estab- 
lishment of the federal reserve system, deposit currency would 
fairly measure the bank credit in the country. 



106 UNIVERSITY OF WISCONSIN STUDIES 

It is therefore obvious that the possible extension of bank 
credit has no limits so far as personal credit is concerned. It 
is limited, however, by two things : first, by the quantity of re- 
serves ; second, by the desirability of converting personal credit 
into bank credit, and this depends upon the discount rate and 
the profitableness of the employment of capital in industry. 

There are therefore limits to the extent to which property 
can be converted into immediate purchasing power through 
the issuance of bank credit. But to the extent that bank credit 
is extended it appears that a portion of the purchasing power 
of the community comes from sources other than income. But 
this addition to the total purchasing power of the community 
is nominal rather than real. To the extent that present pur- 
chasing power is nominally increased through the issuance 
of bank credit, to that extent there is also an addition to the 
circulating media. The effect is an increase in prices and 
therefore no increase in real purchasing power. The nominal 
incomes of people generally are as before, but their real pur- 
chasing power is reduced because of the increase in prices. 
The issuance of bank credit simply re-distributes purchasing 
power, reducing the real purchasing power of income receivers 
generally, and increasing the purchasing power of entrepre- 
neurs able to secure bank credit. It is this redistribution of 
purchasing power, accomplished through the instrumentality 
of banking institutions, that changes demand, upsets prices, 
affects the profit margin, and therefore production. Here in 
short, may be found the fundamental cause of the business 
cycle. 

Bank credit may be likened to a spiral spring which may 
be stretched within certain limits of safety. These limits de- 
pend upon the amount of reserves needed to maintain the sol- 
vency of the banking system. The magnetic force which 
draws out the extensible bank credit is the entrepeneur's 
anticipation of profit. When accumulated stocks have run out, 
when costs are falling, when labor is easily obtainable, when 
loanable funds are plentiful and interest rates run low, then 
prospects for profit-making are bright and entrepreneurs 
apply for bank credit. The issuance of bank credit increases 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 107 

the purchasing power of entrepreneurs. The result is increased 
bidding for raw materials, capital equipment, construction 
work, etc., with a consequent increase in prices. The effect 
is increased profits for entrepreneurs producing raw materials 
and equipment. They in turn will apply for bank credit with 
which to expand their business. Thus in turn their purchasing 
power is increased, adding further force to the upward move- 
ment of prices. So long as bank credit continues to be capable 
of further expansion, prices continue to rise. This upward 
movement comes to a close only when bank credit can no 
longer be further extended for the reason that it has already 
reached the limit of banking safety. 

The demand for bank credit continues to be strong while 
prices are rising owing to the resulting margin between costs 
and selling prices. But rising prices result in more money 
being drawn out into hand to hand circulation. The effect 
is an actual diminution in bank reserves in the very period 
when bank credit is being extended. It therefore becomes 
necessary not merely to stop the expansion of bank credit, but 
actually to reduce the outstanding volume. The demand for 
bank credit is not lacking, but the supply is strained to the 
limit of safety. The banks protect themselves by raising the 
discount rates and scrutinizing more carefully the solvency of 
borrowing firms. A gradual reduction in outstanding bank 
credit is forced. This movement results in the forced sale 
of securities because of the inability of borrowers to renew 
their loans. The stock market begins to decline, trading on 
the stock exchange is reduced, and bank clearings fall off. 
New securities are issued with difficulty, which, coupled with 
the inability to obtain loans at the bank, reduces the purchasing 
power of business enterprises. Presently building falls off, 
then production, imports and commodity prices. Thus the 
limitation in the volume of bank credit gradually drags down 
stock prices, shares traded, bank clearings, building, employ' 
ment, imports, production, prices and earnings. When the 
diminution in profits appears, the downward movement is 
further accelerated by the letting up in the demand for bank 



108 UNIVERSITY OF WISCONSIN STUDIES 

credit. Thus the downward movement like the upward move- 
ment tends to become self-perpetuating. 

But as the upward movement culminates because of the 
strain placed upon bank reserves through an undue extension 
of bank credit, so the downward movement comes to a close 
because of the great accumulation of bank reserves due to the 
reduction of outstanding bank credit and the return of 
money from hand to hand circulation following the decline 
of prices. This continued accumulation of reserves leads 
bankers progressively to lower discount rates to a point low 
enough to make the employment of bank credit again profit- 
able. New securities are freely issued, bank loans are readily 
obtainable, and the purchasing power of business enterprises 
increases. Thus the upward swing returns and the cycle re- 
peats itself. 

The increased demand which results from the extension of 
bank credit soon shows itself in a rising stock market, greater 
production, more imports, larger employment of labor, in- 
creased immigration, and rising prices. Rising prices and the 
increased volume of production result in increased earnings 
and profits. Thus the movements of reserves, bank credit and 
discount rates pull up after them first, the investment series, 
stock prices, shares traded, bank clearings, etc., and second, 
the series which represent industrial conditions per se, com- 
modity prices, production, imports, employment, immigration, 
and earnings. 

That the above analysis finds verification in the monthly 
data presented in this study may be seen from a reference to 
the charts and tables given in Chapter II. The first move- 
ment takes place in bank reserves, loans, deposits and discount 
rates. In the United States reserves began to accumulate late 
in 1903. With the upward swing of reserves, loans and de- 
posits were extended. The banking group as a whole began 
to rise in December 1903. The extension of bank credit in- 
creased the demand for securities. The stock and bond market 
began to rise in the early part of 1904. Building began to 
increase in May, the production of pig iron began to increase 



HANSEN— CYCLES OF PROSPERITY AND DEPRESSION 109 

in earnest in September, imports started upward in August, 
commodity prices in July, and railroad gross earnings in 
August. The average of the Industrial group started upward 
in August. It will be noticed that in nearly every case there 
was a short preliminary rise which, however, received a set- 
back, and was disregarded in the above statements. Thus the 
upward swing of reserves, bank deposits and loans, the easing 
up of discount rates, pulled up, one by one, first the various 
series connected with the security market, and then the series 
associated with industrial activity itself. 

The downward movement again began with reserves, de- 
posits, loans and discount rates. This group began to decline 
in the first half of 1905. The reduction of bank credit af- 
fected the security market and stock prices began to drop. 
The average of the investment series began to turn down in 
the early part of 1906. Industrial activity still continued to 
increase for a time, but gradually the inability to float new 
securities or to get bank credit had its effect. Building began 
to decline in May, 1907, unemployment in July, and the indus- 
trial barometer, composed of production of pig iron, imports, 
commodity prices, railroad gross earnings and immigration, 
in August. 

Similar facts appear in the upward movement following the 
crisis of 1907. Reserves, deposits and loans started upward 
in September, 1907. Discount rates eased up. Stock prices 
followed in the early months of 1908. Building increased in 
March, and the industrial barometer started on the upward 
movement in June, 1908. 

The movements for Great Britian and Germany correspond 
with remarkable closeness of detail to those in the United 
States, and verify the conclusions stated. No economic phe- 
nomena are so international in their interrelation and inter- 
dependence as are the movements of the money market. That 
fluctuations of prosperity and depression are world-wide, at 
least so far as the advanced countries of the world are con- 
cerned, would certainly bring some support to the conclusion 
that these fluctuations are, at bottom, movements of money, 



110 UNIVERSITY OF WISCONSIN STUDIES 

credit and prices. Certainly no other economic factors can be 
claimed to be so international in scope as the movements of 
the money market. Crops, favorable or unfavorable legis- 
lation, governmental demands, local catastrophes, etc., all 
modify the course of the fluctuations in the several countries, 
but the dominant factors are the great international move- 
ments of money, credit and prices. 

That the cycle of prosperity and depression is at bottom a 
question of money, credit and prices is also supported by the 
historical fact that during the long period of declining prices 
from 1873 to 1897 depression was chronic both in the United 
States and Great Britain, and to some extend in all countries. 
Continued depression was broken only by two brief periods of 
prosperity. Since 1897 prosperity has been chronic, so to 
speak, broken only by temporary periods of depression. The 
reason lies in the fact that the period from 1873 to 1897 was 
a period of falling prices broken only at short intervals by tem- 
porarily rising prices. The period from 1897 to the present 
has been a period of continually rising prices, broken by short 
intervals of falling prices. Falling and rising prices are gen- 
erally conceded to be mainly monetary and credit phenomena. 

The analysis of monthly data presented in the foregoing 
pages would indicate the following points : 

1) That the first movement in the prosperity cycle begins 
with reserves, loans, deposits and money rates. 

2) That the movement of reserves, loans, deposits and 
money rates is the causal factor working out its influence 
on stock and bond prices, transactions on the stock exchange, 
bank clearings, business failures, building, employment, pro- 
duction, imports and exports, prices and profits. 



HANSEN-CYCLES OF PROSPERITY AND DEPRESSION 111 

BIBLIOGRAPHY 

Aftalion, A. Les crises periodiqucs dc sur production. Pans. 

1913. 
Babson, Roger W. Desk Sheet of Tables. 
Banker's Magazine. London, 1902-1909. 
Beveridge, W. H. Unemployment. London. 1912. 
Bulletins of Bureau of Labor Statistics. March numbers, 1902- 

1909. 
Bulletin of the U. S. Department of Labor, 1912. Pp. 520-525. 
Carver T N "A Suggestion for a Theory of Industrial De- 
pressions." Q. J. Econ. (May, 1903) pp. 497-500. 
Clark, J. M. "Business Acceleration and the Law of Demand: 
A Technical Factor in Economic Cycles." /. Pol. Econ., 
XXIV, 217-235. 
England, Minnie T. "Fisher's Theory of Crises." Q. J. Econ., 
XXVII, 95-106; "Promotion as the Cause of Crises." 
Q. J. Econ., XXIX, 631-641 ; "Economic Crises." /. Pol. 
Econ., XXI, 345-354; "Analysis of the Crises Cycle." 
/. Pol. Econ., XXI, 712-734. 
Fifteenth Abstract of Labor Statistics of the U. K. 
Financial Review, The, 1902-1909. 
Fisher, Irving, The Purchasing Power of Money. New York. 

1911. Why is the Dollar Shrinking ? New York, 1914. 
Gibson, Thomas. Cycles of Speculation. 
Hobson, J. A. The Industrial System. London. 1909. 
Hooker, R. H. "The Course of Prices at Home and Abroad, 

1890-1910." /. R. S. (December, 1911). 
Hull, George H. Industrial Depressions. New York. 1911. 
Johannsen, N. Neglected Point in Connection with Crises. 

New York. 1908. 
Jones, E. D. Economic Crises. New York. 1900. 
King, W. I. "The Correlation of Historical Economic Vari- 
ables and the Misuse of Coefficients in this Connection." 
Q. Pub. of Am. Stat. Assn., XV, 847-853. 



112 UNIVERSITY OF WISCONSIN STUDIES 

Labor Bulletins, New York, 1902-1909. 

Labour Gazette, 1902-1909. 

London Economist, The, 1902-1909. 

Mitchell, Wesley C. Business Cycles. Berkeley. 1913. 

Moore, Henry L. Economic Cycles: Their Law and Cause. 

New York. 1914. 
Noyes, Alexander D. "Year After the Panic of 1907." Q. J. 

Econ., XXIII, 185-212. 
Patterson, E. M. "Theories of Crisis." Ann. Am. Acad., LIX, 

133-147. 
Persons, Warren M. "Construction of a Business Barometer." 

American Economic Review, VI (December, 1916). 
Robertson, D. H. Study of Industrial Fluctuations. London. 

1915, "Study in Trade Fluctuations." /. R. S., LXXVII, 

159-178. 

Selwyn-Brown. "Economic Crises and Stock Security 
Values." Ann. Am. Acad., XXXV, 636-645. 

Sprague, O. M. W. "History of Crises under the National 
Banking System." Senate Document No. 538, 61st Cong., 
2nd Session. 

Statistical Abstract for the U. K., 1897-1911. 
Veblen, Thorstein B. Theory of Business Enterprise. New 
York. 1904. 

Vierteljahrsheften, 1902-1909. 

Volkswirtschaftliche Chronik, 1902-1909; 1910, p. 362. 



